What are the important factors which determine the velocity of money?
The main determinants of velocity are:
(a) Efficiency of the Payments System: If it were possible to convert interest-bearing assets into money on short notice and at low cost, rational individuals might prefer to use, say, credit cards for most purchases. That way, the same volume of transactions could be accomplished with lower money balances. By definition, velocity would rise.
(b) Interest Rates: The higher the rate of interest, the greater the opportunity cost of holding money. Therefore, as interest rates rise, people want to hold smaller cash balances which means that the existing stock of money circulates faster, and velocity rises.
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Common ownership of resources:
a. is a system by which the government allocates the rights to harvest renewable resources. b. may fail to ensure that harvesting of renewable resources does not exceed the maximum sustainable yield. c. is an environmentally effective method of internalizing an externality problem in renewable resource conservation. d. efficiently controls the harvest of renewable resources. e. usually helps in preventing market failures.
Automatic stabilizers include
A. Deregulation. B. Open market operations. C. Discretionary tax cuts. D. Unemployment benefits.
If aggregate demand shifts from AD1 to AD2,
A. both output and the price level will rise.
B. output will rise and the price level will fall.
C. output will rise and the price level will remain the same.
D. both output and the price level will fall.
When price is above the equilibrium level, competitive price cutting will continue as long as quantity supplied exceeds quantity demanded.
Answer the following statement true (T) or false (F)