If velocity and output were nearly constant, the inflation rate would be equal to the money supply growth rate times what factor?
A) -2
B) -1
C) 1
D) 2

Question

Quizplus · Accepted Answer

The inflation rate would be equal to the money supply growth rate times 1, according to the equation of exchange in economics (MV = PQ), where M is the money supply, V is the velocity of money, P is the price level, and Q is the output. If velocity (V) and output (Q) are constant, changes in the money supply (M) directly affect the price level (P), which is a measure of inflation.

If Velocity and Output Were Nearly Constant, the Inflation Rate