Given the equation of exchange, MV = PQ, increasing the money supply will increase:
A) the price level.
B) the economy's total output.
C) the economy's total output and the price level.
D) any of the above could be correct, depending on the state of the economy.

Question

Quizplus · Accepted Answer

The equation of exchange, MV = PQ, suggests that an increase in the money supply (M) can lead to an increase in the price level (P), an increase in the economy's total output (Q), or both, depending on factors such as the velocity of money (V) and the economy's capacity to produce goods and services. Therefore, the impact of increasing M can vary, making D the correct choice.

Given the Equation of Exchange, MV = PQ, Increasing the Money