According to the equation of exchange (or 'quantity equation'), a rise in the money supply will raise only prices.

Question

Quizplus · Accepted Answer

The equation of exchange states that MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of goods and services produced. If the money supply increases, then either P or Q must increase to keep the equation in balance. Since Q is fixed in the short run, the only way to keep the equation in balance is for P to increase.

According to the Equation of Exchange (Or 'Quantity Equation'), a Rise