According to the growth version of the quantity equation, a 4% increase in the money supply, holding velocity constant, causes a 4% increase in:
A) nominal GDP.
B) output.
C) employment.
D) real GDP.

Question

Quizplus · Accepted Answer

According to the growth version of the quantity equation, a 4% increase in the money supply, holding velocity constant, causes a 4% increase in nominal GDP. This is because the equation states that M x V = P x Y, where M is the money supply, V is velocity, P is the price level, and Y is real GDP. Holding velocity constant, a 4% increase in M leads to a 4% increase in P x Y, which is nominal GDP.

According to the Growth Version of the Quantity Equation, a 4