According to the equation of exchange, if the money supply rises by £10 million and the velocity of circulation is 4, nominal national income will rise by

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PQ, where M is the money supply, V is the velocity of circulation, P is the price level, and Q is the quantity of goods and services produced (real GDP). If the money supply rises by £10 million and the velocity is 4, the increase in nominal national income (PQ) will be 4 times £10 million, which is £40 million.

According to the Equation of Exchange, If the Money Supply