In a full-employment economy, a rise in M will cause inflation unless
A)V rises in proportion to the increase in M.
B)the quantity of goods produced declines proportionately.
C)tax reductions accompany the increase in the money supply.
D)the velocity of money diminishes.

Question

Quizplus · Accepted Answer

In a full-employment economy, if the velocity of money (V) diminishes, it can offset the inflationary pressure caused by an increase in the money supply (M), preventing inflation.

In a Full-Employment Economy, a Rise in M Will Cause