The Behavioral Characteristics of Velocity May Soon Lead To A Rise In Inflation

The Federal Reserve\u27s accommodative policy response to the Great Recession has left many wondering if inflation will rear its destructive head in the near future. In fact, the Quantity Theory of Money predicts that a rise in the money supply will result in an increase in prices. But, this theory is controversial. Some economists argue that the Velocity of money may be variable and thus can influence changes in the level of prices. Others argue that Velocity is constant and that over the long-run an increase in the money supply will inevitably lead to an increase in the level of prices. This study reviews the current measurements of the Quantity Theory of Money and attempts to provide a framework for understanding the impact of certain behavioral characteristics of consumer saving and spending not accounted for in the theory