If velocity is constant then targeting the money supply and nominal GDP is

Question

Quizplus · Accepted Answer

If velocity is constant, targeting the money supply and nominal GDP become effectively the same thing because the equation of exchange, MV = Py, suggests that any change in M or V will result in an equal change in P or y. In this case, if V is stable, any change in M will lead to a corresponding change in nominal GDP (Py) rather than inflation (P) or real GDP (y). Hence, targeting either the money supply or nominal GDP becomes equivalent, and both strategies will achieve the same outcome.

If Velocity Is Constant Then Targeting the Money Supply and Nominal