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Chapter 20: Q 3. (page 546)

If credit cards were made illegal by congressional legislation, what would happen to velocity? Explain your answer.

Short Answer

Expert verified

Velocity increases.

Step by step solution

01

Step 1. Define velocity.

The pace at which the location changes is defined as velocity.

02

Step 2. Explanation

Velocity refers to the rate at which the position changes.

The pace at which the location changes is called velocity. The displacement or position change (a vector quantity) per time ratio is the average velocity.

Velocity may increase as a result of the increased demand for money.

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Most popular questions from this chapter

Explain how the following events will affect the demand for money according to the portfolio theories of money demand:

a. The economy experiences a business cycle contraction

b. Brokerage fees decline, making bond transactions cheaper.

c. The stock market crashes. (Hint: Consider both the increase in stock price volatility following a market crash and the decrease in wealth of stockholders.)

What happens to nominal GDP if the money supply grows by 17% but velocity declines by 24%?

What evidence is used to assess the stability of the money demand function? What does the evidence suggest about the stability of money demand, and how has this conclusion affected monetary policymaking?

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Suppose a given country experienced low and stable inflation rates for quite some time, but then inflation picked up and over the past decade had been relatively high and quite unpredictable. Explain how this new inflationary environment would affect the demand for money according to portfolio theories of money demand. What would happen if the government decided to issue inflation-protected securities?
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