According to the equation of exchange,if nominal GDP increases then
A) the quantity of money must also increase.
B) the velocity of money must also increase.
C) both the quantity of money and the velocity of money must also increase.
D) either the quantity of money and/or the velocity of money must also increase.

Question

Quizplus · Accepted Answer

The equation of exchange is MV=PQ, where M represents the quantity of money in circulation, V represents the velocity of money or the rate at which money circulates in the economy, P represents the price level, and Q represents the quantity of goods and services produced. Therefore, an increase in nominal GDP (Q*P) can be caused by an increase in either the quantity of money (M) or the velocity of money (V), or both. Thus, the correct answer is D, either the quantity of money and/or the velocity of money must increase.

According to the Equation of Exchange,if Nominal GDP Increases Then