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

Question

Quizplus · Accepted Answer

The value of real cash balances decreases by the same percentage that the money supply increases if the velocity of money and real GDP remain constant. This is because the increase in the money supply, without a corresponding increase in real goods and services, reduces the purchasing power of money, effectively decreasing the value of real cash balances by the same percentage increase in the money supply.

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