If the government increases the money supply by 25%, and the velocity of money and real GDP remain constant,

Question

Quizplus · Accepted Answer

If the government increases the money supply by 25% and both the velocity of money and real GDP remain constant, the price level would need to adjust upward by the same percentage (25%) to maintain the equation of exchange (MV = PQ). This increase in the price level can be interpreted as inflation, which in this context is akin to an inflation tax of 25%.

If the Government Increases the Money Supply by 25%, and the Velocity