Consider the equation %$\Delta$M +%$\Delta$V $\approx$ %$\Delta$P +%$\Delta$Y.If there is no change in real GDP (%$\Delta$Y = 0)and there is no change in the money supply (%$\Delta$M= 0),what would have to happen for there to be inflation (%$\Delta$P $\gt$ 0)?
A) Money would have to change hands less often,%$\Delta$V $\lt$ 0.
B) Money supply times money velocity would have to go down,%$\Delta$M + %$\Delta$V $\lt$ 0.
C) Nominal GPD would have to go down,%$\Delta$P + %$\Delta$Y $\lt$ 0.
D) Money would have to change hands more often,%$\Delta$V $\gt$ 0.
E) The money velocity would have to remain the same,%$\Delta$V = 0.

Question

Consider the equation %$\Delta$M +%$\Delta$V $\approx$ %$\Delta$P +%$\Delta$Y.If there is no change in real GDP (%$\Delta$Y = 0)and there is no change in the money supply (%$\Delta$M= 0),what would have to happen for there to be inflation (%$\Delta$P  $\gt$ 0)?
A) Money would have to change hands less often,%$\Delta$V $\lt$ 0.
B) Money supply times money velocity would have to go down,%$\Delta$M + %$\Delta$V $\lt$ 0.
C) Nominal GPD would have to go down,%$\Delta$P + %$\Delta$Y $\lt$ 0.
D) Money would have to change hands more often,%$\Delta$V  $\gt$ 0.
E) The money velocity would have to remain the same,%$\Delta$V = 0.

Quizplus · Accepted Answer

In order for there to be inflation without a change in real GDP or the money supply, money would have to change hands more often, represented by an increase in money velocity. This is because MV = PY, where M is the money supply, V is money velocity, P is the price level, and Y is real GDP. If M and Y remain constant, an increase in V would result in an increase in P and therefore inflation.

Consider the Equation Δ\DeltaΔ M Δ\DeltaΔ V ≈\approx≈ Δ\DeltaΔ P Δ\DeltaΔ

Consider the Equation $\Delta$ M $\Delta$ V $\approx$ $\Delta$ P $\Delta$