When the Fed Conducts Expansionary Monetary Policy, Lower Short-Term Interest

Multiple Choice

When the Fed conducts expansionary monetary policy, lower short-term interest rates will tend to stimulate the economy. How will the change in the velocity of money affect this result?

A) Velocity will decline, enhancing the stimulus effect.
B) Velocity will increase, somewhat dampening the stimulus effect.
C) Velocity will increase, enhancing the stimulus effect.
D) Velocity will decline, somewhat dampening the stimulus effect.