Define the velocity of money. Explain the monetarist view with regard to the stability of velocity.
What will be an ideal response?
The velocity of money is the number of times per year that the average dollar is spent. It can be viewed as the rate at which money turns over in a year. The monetarists look at the value of V over the long run and conclude that it is stable. By stable the monetarist does not mean “constant.” Rather, the monetarist thinks that the factors changing velocity over time occur gradually and are predictable. Any year-to-year changes in velocity can be easily anticipated.
You might also like to view...
Assume goods X and Y are complements and are produced in perfectly competitive markets. All else constant, an increase in demand for good X would cause:
A) a decrease in the number of firms that produce good X. B) an increase in the number of firms that produce good Y. C) a decrease in the number of firms that produce good Y. D) no effect on the number of firms that produce either good.
Which of the following activities would occur in the product market?
a. Harry mows his grass. b. General Motors hires additional workers to run a third shift at the factory. c. Sam pays a speeding ticket. d. Dolly buys a ticket to the ball game. e. Jane bakes a pie for Thanksgiving dinner.