Inflation reduces the velocity of money because people reduce ...

[jhjkgdfhk]

Inflation reduces the velocity of money because people reduce their money holdings. Is the previous statement correct or incorrect? Explain your answer.
 
  What will be an ideal response?

Question 2

The opportunity cost of the financial resources used to finance the purchase of capital is
 
  A) the price of the capital goods purchased.
  B) the real interest rate.
  C) the quantity of investment demanded.
  D) the supply of investment.
  E) capital investment.

[peter]

Answer to Question 1

The statement is incorrect. As the inflation rate rises, people reduce their money holdings by spending money more rapidly. As a result, the velocity rises rather than falls.

Answer to Question 2

B

[jhjkgdfhk]

Excellent

[zacnyjessica]

Gracias!