According to the quantity equation, an increase in the velocity of money, all else fixed, will tend to cause:
A) a reduction in nominal GDP.
B) a reduction in the money supply.
C) an increase in nominal GDP.
D) an increase in the money supply.

Question

Quizplus · Accepted Answer

The quantity equation states that MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP. Holding M, P, and Y constant, an increase in V will cause an increase in nominal GDP (PY). Therefore, the correct choice is C - an increase in nominal GDP.

According to the Quantity Equation, an Increase in the Velocity