Changes in Velocity

What happens when aggregate demand shifts because of a change in the velocity of money? You’ll recall from earlier videos that an increase or decrease in velocity means that money is changing hands at a faster or slower rate.

Changes in velocity are temporary, but they can still cause business fluctuations. For instance, say that consumption growth slows as consumers become pessimistic about the economy.

In fact, we saw this play out in 2008, when workers and consumers became afraid that they might lose their jobs during the Great Recession. This fear drove them to cut back on their spending in the short run. But, since changes in velocity are temporary, this fear receded as time passed and the economy began to recover.

Dive into this video to learn more about what causes shifts in the aggregate demand curve.

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