In the quantity equation MV = PY, if V and P are constant, an increase in money supply by £10 million will result in a £10 million increase in real national income.

Question

Quizplus · Accepted Answer

If V (velocity of money) and P (price level) are constant, an increase in M (money supply) would lead to a proportional increase in PY (nominal GDP). However, since P is constant, the increase in PY reflects an increase in Y (real GDP) but not necessarily by the exact amount of the increase in M, as the relationship depends on the values of V and P, and how the additional money affects economic activity.

In the Quantity Equation MV = PY, If V and P