Empirical Studies Indicate That the Velocity of Money Tends to Increase

question 151

Multiple Choice

Empirical studies indicate that the velocity of money tends to increase when interest rates rise. Which of the following best explains why this is true?

• A) When the velocity of money is high, banks will increase their lending interest rates.
• B) An increase in the growth rate of GDP will cause the velocity of money to increase.
• C) The higher interest rates increase the cost of holding money balances and, thereby, increase the velocity of money.
• D) Both the velocity of money and interest rates will rise when the inflation rate falls.

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Definitions:

Sense of Taste

The sense of taste is one of the five traditional senses and refers to the capability to discern different flavors in food and drinks through taste receptor cells on the tongue.

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Muscles located entirely within the tongue, essential for movements like rolling and elongating.

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Twelve pairs of nerves that originate in the brain and control a variety of functions including sensation, motor skills, and autonomic functions in the head and neck.

Trochlear Nerve

The fourth cranial nerve, responsible for controlling the superior oblique muscle of the eye, which allows for rotational movement.