The equation of exchange suggests that, if the supply and velocity of money remain unchanged, an increase in the physical volume of goods and services produced will cause
A)the unemployment rate to rise.
B)the Federal Reserve Banks to sell securities in the open market.
C)a decline in the price level.
D)an automatic budget deficit.

Question

Quizplus · Accepted Answer

According to the equation of exchange (MV = PQ), if the money supply (M) and velocity (V) are constant, an increase in the quantity of goods and services (Q) will lead to a decrease in the price level (P) to maintain the equality.

The Equation of Exchange Suggests That, If the Supply and Velocity