Answer to Question #86216 in Macroeconomics for kertrese

Question

Classical economists assumed that velocity was stable in the short run. But suppose that, because of a change in the payments mechanism, for example, greater use of credit cards, there was an exogenous rise in the velocity of money. What effect would such a change have on output, employment, and the price level within the classical model?

Answer 1

If a greater use of credit cards creates exogenous rise in the velocity of money, then the output, employment and the price level within the classical model will increase.