According to Irving Fisher, which factor affects the velocity of money?

The correct answer is the number of pay periods per year, as this directly influences how frequently money circulates within the economy. Irving Fisher's equation of exchange focuses on the relationship between money supply, velocity, price levels, and output (MV=PQ). When individuals receive their pay more frequently, they are likely to spend that money sooner, thereby increasing the velocity of money—the rate at which money changes hands in transactions for goods and services.

For example, if individuals receive weekly paychecks instead of monthly ones, they would have the opportunity to spend their earnings more often within that period, which increases the velocity of money. This relationship highlights how the structure of income distribution and payment frequency can significantly impact economic activity.

While factors like overall demand for goods, level of consumer confidence, and banking system stability may influence economic conditions, they do not directly affect how quickly money changes hands in the way that the frequency of pay periods does.