Suppose the quantity of money and real GDP do not change.If velocity increases, then the
A) price level will rise.
B) price level will fall.
C) real interest rate will rise.
D) real interest rate will fall.
E) inflation rate will fall.

Question

Quizplus · Accepted Answer

The equation of exchange states that MV = PY, where M is the quantity of money, V is velocity, P is the price level, and Y is real GDP. If M and Y remain constant and V increases, then P must increase in order to maintain the equality of the equation. This is because each unit of money is being used to purchase more goods and services, meaning that each good or service is being sold for a higher price. Therefore, the correct choice is A, as the price level will rise.

Suppose the Quantity of Money and Real GDP Do Not