According to the equation of exchange, what are increases in the money supply translated into?
A) into increases in the velocity of money
B) into decreases in real GDP
C) into increases in real GDP
D) into increases in the price level

Question

According to the equation of exchange, what are increases in the money supply translated into?  
A) into increases in the velocity of money 
B) into decreases in real GDP 
C) into increases in real GDP 
D) into increases in the price level

Quizplus · Accepted Answer

According to the equation of exchange (MV=PQ), increases in the money supply (M) lead to increases in the price level (P), assuming velocity (V) and real GDP (Q) remain constant. Therefore, the correct answer is D.

According to the Equation of Exchange, What Are Increases in the Money