Given the equation of exchange, MV=PQ, if the money supply is increased when the economy is operating at less than full employment, the expected result will be an increase in:
A) output (Q).
B) velocity (V).
C) the price level (P).
D) unemployment (Q-V).

Question

Quizplus · Accepted Answer

When the economy is operating below full employment, increasing the money supply (M) typically leads to an increase in output (Q) as firms respond to higher demand by producing more goods and services, rather than increasing prices (P).

Given the Equation of Exchange, MV=PQ, If the Money Supply