According to the equation of exchange,total spending will rise if the money supply decreases and velocity is stable.

Question

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According to the equation of exchange, MV = PQ, where M is the money supply, V is velocity, P is the price level, and Q is real output. If the money supply decreases and velocity is stable, then M decreases, but V remains unchanged. Therefore, PQ must also decrease, which means total spending will not rise.

According to the Equation of Exchange,total Spending Will Rise If