If the velocity of money is constant, then nominal GDP can change only if there is a change in the money supply.

Question

Quizplus · Accepted Answer

According to the equation of exchange (MV=PQ), if the velocity of money is constant, then an increase in the money supply (M) will lead to an increase in nominal GDP (PQ). A decrease in the money supply would lead to a decrease in nominal GDP. If velocity is constant, changes in the money supply are the only thing that can cause changes in nominal GDP.

If the Velocity of Money Is Constant, Then Nominal GDP