If the money supply grew by 6 percent, velocity fell by 2 percent, and price level remained the same, then real GDP would

Question

Quizplus · Accepted Answer

The equation of exchange is MV=PY, where M is the money supply, V is velocity, P is the price level, and Y is real GDP. Solving for Y, we get Y=MV/P. Plugging in the given values, we get Y= (1.06 x 0.98)Y/1, which simplifies to Y=1.04Y. Therefore, real GDP would increase by 4 percent.

If the Money Supply Grew by 6 Percent, Velocity Fell