Question

Many economists believe that despite all the quantitative easing the Federal Reserve has done, it has not worked because of the lack of increase in the Velocity of money? Do You agree? Why or why not?

Answer 1

Quantitative easing means an increase in money supply and velocity means the number of times money changes hands. Effect of quantitative easing can only be realized if the velocity of money increases and money circulates with every person in the economy. If the money supply increases and it goes to a handful of investors, the economy will still feel the recession.

So, it is important that velocity of money increases for the effectiveness of quantitative easing.