According to the equation of exchange,
A)The right-hand side will equal the left-hand side only if velocity does not change from year to year
B)Velocity must be constant
C)An increase in the quantity of money will lead to an increase in the price level,other things constant
D)Prices cannot change
E)All of the above

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PQ, where M is the quantity of money, V is velocity, P is the price level, and Q is the quantity of goods and services. According to the equation, an increase in the quantity of money will lead to an increase in the price level, other things constant (choice C). However, it does not imply that velocity must be constant (choice B) or that prices cannot change (choice D). While the equation may be rearranged to express velocity as V = PQ/M, the right-hand side is not necessarily equal to the left-hand side if velocity does not change (choice A). Therefore, the best choice is C.

According to the Equation of Exchange