According to quantity equation the price level would change less the proportionately with a rise in the money supply if there were also

Question

Quizplus · Accepted Answer

According to the quantity equation, MV = PY, where M is the money supply, V is velocity, P is the price level, and Y is output. If there is a rise in the money supply, the price level would increase proportional to the rise in the money supply assuming velocity and output remain constant. However, if there is either a rise in output or a fall in velocity, the price level would change less proportionately with a rise in the money supply. This is because a rise in output would increase the supply of goods, which would put downward pressure on prices, while a fall in velocity would mean that each unit of money is used less frequently, reducing its impact on prices. Thus, choice B is the best choice.

According to Quantity Equation the Price Level Would Change Less