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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Does the monetary policy of market monetarists take into account changes in velocity? Explain your answer.

To determine

The changes in velocity and the monetary policy of market monetarists.

Explanation

Yes, the monetary policy of market monetarists takes into account the changes in the velocity. When there is a financial crisis, it will make people to hold more money and this implies that the spending of people will reduce. This results in a reduction in the velocity of money and if the monetary authority does not take adequate measures to compensate this reduction in the money supply, it will lead to a decline in the GDP. This can be illustrated with the help of an example...

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