According to the quantity equation, if Y and M are constant, and V doubles, which of the following will happen to the price level?
A)It will less than double.
B)It will double.
C)It will more than double.
D)It might double, more than double, or less than double; more information is needed.

Question

Quizplus · Accepted Answer

According to the quantity equation, MV = PY. If Y and M are constant, then PY is also constant. If V doubles, then we have:
2MV = PY
Dividing both sides by Y, we get:
2M(V/Y) = P
Since V/Y represents the velocity of money, which is assumed to be constant in the long run, 2M is the new constant in the equation. Therefore, if V doubles, P must double as well to maintain the equality of the equation.

According to the Quantity Equation, If Y and M Are