The assumption of constant velocity in the quantity equation is the equivalent of the assumption of a constant:
A) short-run aggregate supply curve.
B) long-run aggregate supply curve.
C) price level in the short run.
D) demand for real balances per unit of output.

Question

Quizplus · Accepted Answer

The quantity equation is given by M x V = P x Y, where M represents the money supply, V is the velocity of money, P is the price level, and Y is real output. The assumption of constant velocity implies that V is constant over time. This means that the demand for real balances per unit of output (which is equal to 1/V) is also constant. The other options (A, B, and C) are not directly related to the quantity equation and the assumption of constant velocity.

The Assumption of Constant Velocity in the Quantity Equation Is