QuestionJuly 20, 2025

According to the market monetarists, if the fed promises to increase the money supply next year, what does that do to velocity this year? It decreases. It increases. It stays the same. It either rises or falls as necessary to become 0.

According to the market monetarists, if the fed promises to increase the money supply next year, what does that do to velocity this year? It decreases. It increases. It stays the same. It either rises or falls as necessary to become 0.
According to the market monetarists, if the fed promises to increase the money supply next
year, what does that do to velocity this year?
It decreases.
It increases.
It stays the same.
It either rises or falls as necessary to become 0.

Solution
4.2(305 votes)

Answer

It increases. Explanation 1. Understand Market Monetarism Market monetarists believe that expectations about future monetary policy can influence current economic variables. 2. Analyze the Effect on Velocity If the Fed promises to increase the money supply next year, people expect higher future inflation or economic activity. This expectation can lead to increased spending and investment now, thus increasing velocity this year.

Explanation

1. Understand Market Monetarism<br /> Market monetarists believe that expectations about future monetary policy can influence current economic variables.<br /><br />2. Analyze the Effect on Velocity<br /> If the Fed promises to increase the money supply next year, people expect higher future inflation or economic activity. This expectation can lead to increased spending and investment now, thus increasing velocity this year.
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