Question

If the transactions velocity of money remains constant while the quantity of money doubles, the: price of the average transaction multiplied by the number of transactions must double. price of the average transaction multiplied by the number of transactions must remain constant. price of the average transaction must double. number of transactions must remain constant.

Answer 1

The price of the average transaction multiplied by the number of transactions must double

Step-by-step explanation:

Since transaction velocity = (number of transactions x average value of transaction ) / amount of money in the economy

So therefore for transaction velocity to remain constant the numerator has to be doubled since the denominator is doubled.

Answer 2

price of the average transaction multiplied by the number of transactions must double

Step-by-step explanation:

This follows the principle of the Quantity theory of money. Thus according to this theory when the rate of change of the transactions of money in an economy has remain constant or unchanged, while the supply of increases twice as before it will result in a situation where;

the price of the average transaction multiplied by the number of transactions must double because of increase supply of money.

This simply implies that the more money in circulation, the more the price of goods and services in an economy.