Principles of Macroeconomics / Unit 12 MAC 1133 short lesson, about 20 seconds
Why Velocity Is Not Stable in the Short Run
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The idea
Velocity is the reciprocal of how much money people hold relative to income, so anything that shifts money demand shifts velocity. Interest rates, expected inflation and transfer costs all move it.
In practice
Expecting inflation, people hold money more briefly, so velocity rises.
Where people slip
So a rise in the money supply need not raise nominal GDP by the same percentage.
Your place on the trail
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