According to the equation of exchange, how can national income grow even though the amount of money does not?
A)price level increases
B)real GDP decrease
C)velocity increases
D)velocity decreases

Question

Quizplus · Accepted Answer

According to the equation of exchange, MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP. If the amount of money (M) does not increase, but national income (Y) grows, this can only happen if the velocity of money (V) increases. This means that each unit of money is being spent more frequently, leading to an increase in transactions and economic activity. Therefore, option C (velocity increases) is the correct answer.

According to the Equation of Exchange, How Can National Income