According to the equation of exchange,how can national income grow even though the amount of money does NOT?
A) Price level increases.
B) Real GDP decreases.
C) Velocity increases.
D) Velocity decreases.

Question

Quizplus · Accepted Answer

According to the equation of exchange, MV=PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the real output. National income is typically represented by real GDP (Q). If the amount of money (M) does not increase, national income can still grow if velocity (V) increases. This means that money is being spent more quickly, which can stimulate economic activity and increase real output. Therefore, choice C, velocity increases, is the best answer.

According to the Equation of Exchange,how Can National Income Grow