All else equal,according to the quantity theory of money,an increase in the velocity of money will cause:
A) deflation.
B) disinflation.
C) hyperinflation.
D) higher inflation.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the equation of exchange is MV=PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real output. Holding all else constant, an increase in V will lead to an increase in PY. Since Y is fixed in the short run, an increase in PY must come from an increase in P, which means higher inflation. Therefore, the correct choice is D, higher inflation.

All Else Equal,according to the Quantity Theory of Money,an Increase