If something causes the velocity of money to increase, the same amount of money will...Choose one answer. a. no longer have to support so many transactions, so nominal GDP can increase   b. be...

If something causes the velocity of money to increase, the same amount of money will...

Choose one answer.

a. no longer have to support so many transactions, so nominal GDP can increase   b. be forced to support more transactions, so nominal GDP will decrease   c. be able to support fewer transactions, so nominal GDP will decrease   d. be able to support more transactions, so nominal GDP can increase   e. mean nothing can happen to nominal GDP

Asked on by mahdi12

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Of the answers given here, the best is D.

When the velocity of money increases, each dollar (or other currency) is spent more often.  The money circulates more quickly through the economy.  This means that the same amount of money is supporting more transactions.  This makes A and C incorrect.  

If each dollar is spent more often, this means that more goods and services are being bought.  If more goods and services are bought, then (all other things being equal) nominal gross domestic product will rise.  Therefore, D is the best answer to this question.

Sources:
bobbysingh's profile pic

bobbysingh | Student | (Level 1) eNoter

Posted on

Of the answers given here, the best is D.

When the velocity of money increases, each dollar (or other currency) is spent more often.  The money circulates more quickly through the economy.  This means that the same amount of money is supporting more transactions.  This makes A and C incorrect.  

If each dollar is spent more often, this means that more goods and services are being bought.  If more goods and services are bought, then (all other things being equal) nominal gross domestic product will rise.  Therefore, D is the best answer to this question

Sources:

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