When considering the velocity of money, the Federal Reserve is most concerned about its?

Question

a. sign
b. determinants
c. stability
d. absolute size

I believe the answer is c.

Answer 1

Online is the text of a speech by Federal Reserve Governor Laurence H. Meyer in which he describes the basics of monetary policy and a discussion of velocity. The keyword as you go through it is "relationship".

Answer 2

You're right: C. Because if c is unstable, then there are implications vis-a-vis the equation of exchange (m * v = p * y).

In other words, assuming v is constant and that y grows at a steady rate, then any changes in m must be reflected in changes in p, a cardinal assumption of classical thinking.

But everything goes haywire with this neat scenario if your assumption that v is not constant begins to erode.

So yes, that is the aspect of greatest concern about v on the part of the Fed.