If a percentage decrease in money supply is followed by a proportional percentage decrease in prices and output, this means that:
A)the velocity of money is constant.
B)the economy is in a recession.
C)the velocity of money has fallen.
D)real GDP is constant.
E)the economy is not at maximum capacity

Question

Quizplus · Accepted Answer

If a percentage decrease in money supply is followed by a proportional percentage decrease in both prices and output, it suggests that the velocity of money is constant. This means that each unit of money is being used the same number of times as before, indicating that people have not changed their behavior in response to the decrease in money supply. It does not necessarily mean that the economy is in a recession or that real GDP is constant. However, if the economy is not at maximum capacity, it may suggest that there is room for expansion.

If a Percentage Decrease in Money Supply Is Followed by a Proportional