The view that velocity is constant in the short run transforms the equation of exchange into the quantity theory of money. According to the quantity theory of money,when the money supply doubles
A)velocity falls by 50 percent.
B)velocity doubles.
C)nominal incomes falls by 50 percent.
D)nominal income doubles.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, nominal income (P x Y) is equal to the money supply (M) multiplied by velocity (V). If velocity is assumed constant in the short run, then a doubling of the money supply would lead to a doubling of nominal income (D).

The View That Velocity Is Constant in the Short Run