Based upon the equation of exchange,which of the following can cause an increase in the price level?

Question

Quizplus · Accepted Answer

The equation of exchange states that the price level is a function of the money supply multiplied by the velocity of money, divided by real GDP. Therefore, an increase in the money supply will lead to an increase in the price level, ceteris paribus. A decrease in velocity (A) would lead to a decrease in the price level, while a decrease in the money supply (B) would lead to a decrease in the price level. An increase in real GDP (C) would not necessarily cause an increase in the price level, as it would depend on whether the increase in real GDP is matched by a corresponding increase in the money supply. Therefore, the correct answer is D, an increase in the money supply.

Based Upon the Equation of Exchange,which of the Following Can