From the equation of exchange,if both real income (Y)and the quantity of money (M)double and the price level (P)remains constant,then velocity (V)________ and nominal income ________.
A)remains constant;doubles
B)doubles;remains constant
C)doubles;doubles
D)decreases by 50 percent;quadruples
E)none of the above

Question

Quizplus · Accepted Answer

According to the equation of exchange, M*V = P*Y. If both M and Y double, but P remains constant, then V must remain constant as well in order for the equation to hold true. Therefore, nominal income (P*Y) will double, while velocity (V) remains constant. So, the correct choice is A.

From the Equation of Exchange,if Both Real Income (Y)and the Quantity