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.