The Reason That Velocity Increases When Interest Rates Rise Is

question 129

Multiple Choice

The reason that velocity increases when interest rates rise is

• A)the Fed encourages banks to turn money in faster for recycling, which causes money to move faster.
• B)the opportunity cost of saving increases, so people hold smaller cash balances.
• C)home mortgage payments increase, so people write larger checks that reduces their checking account balances.
• D)the opportunity cost of holding money increases, so average money balances decrease.

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Definitions:

Cost of Goods Sold

Direct costs attributable to the production of the goods sold by a company, including material and labor costs.

Total Sales

The aggregate revenue a company generates from the sale of goods or services before any expenses are subtracted.

Current Ratio

Current Ratio is a liquidity ratio that measures a company's ability to pay short-term obligations by comparing current assets to current liabilities.

Accounts Receivable

Funds that are to be paid to a business by its customers for the provision of goods or services that have already been delivered or used, but have not been paid for.