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4. 3 points Ithe postwar period prior to 1980, M1 velocity generally rose. Give some reasons why

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After the post-war period, the economy started to come out of the economic shocks caused by war, which increased aggregate demand in the economy. Higher aggregate demand was fuelled by an increase in consumption demand, which resulted in higher demand for money and since money supply did not rise as fast as the demand for money, it led to higher velocity of transactions.

In addition, during economic recession, inflation rate rises, as well as credit lending activities increase in the economy, both of which will increase velocity of money.

Finally, in post-war period, trade volume increased which increased the frequency of transactions, therefore increasing the velocity of money.

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