If a 5 percent increase in the money supply always leads to a 5 percent increase in nominal GDP, this indicates that

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If a 5 percent increase in the money supply always leads to a 5 percent increase in nominal GDP, it indicates that the velocity of money (the rate at which money circulates in the economy) is constant. This is because, according to the equation of exchange (MV = PQ), where M is the money supply, V is the velocity of money, P is the price level, and Q is the real GDP, if V is constant and M increases by a certain percentage leading to an equal percentage increase in PQ (nominal GDP), it implies that the change in nominal GDP is directly proportional to the change in the money supply, assuming V is constant.

If a 5 Percent Increase in the Money Supply Always