If velocity changes unpredictably over time, what becomes unpredictable?
AThe effect on federal salaries
BThe effect on savings accounts
CThe effect on nominal GDP
DThe effect on foreign tariffs
Answer & Solution
Correct answer: C. The effect on nominal GDP
1. Monetary policy works through the money supply.
2. The link from money supply to output runs through velocity.
3. If velocity changes unpredictably, the effect of money supply changes on nominal GDP becomes unpredictable.
4. So the outcome that becomes unpredictable is nominal GDP.
_Source: OpenStax Principles of Macroeconomics 3e (CC BY 4.0), Ch 15 'Monetary Policy and Bank Regulation', sections 15.1-15.5_
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