c. What is the relationship between the parameter \(k\) and the velocity of money?
\(\circ\) There is no relationship between \(k\) and \(V\), i.e., the amount of money people hold is not related to the velocity of money.
\(\circ\) \(V = \frac{1}{k}\): \(k\) is inversely related to velocity, i.e., the more money people hold for a given real income, the smaller velocity
is, and vice versa.
\(\circ\) \(V = k\): \(k\) is directly related to velocity, i.e., the more money people hold for a given real income, the larger velocity is,
and vice versa.
\(\circ\) \(V = k \frac{PY}{M}\): \(k\) times the ratio of nominal output to the money supply is related to velocity, i.e., the more money people
hold, the larger velocity is, and vice versa.
d. Suppose that instead of a constant money demand function, the velocity of money in this economy was growing steadily
due to financial innovation. Assuming everything else was unchanged, how would that affect the inflation rate?
\(\circ\) The inflation rate would fluctuate.
\(\circ\) The inflation rate would decrease.
\(\circ\) The inflation rate would increase.
\(\circ\) The inflation rate would remain unchanged.
