If we assume that velocity is constant, and if the money supply increases by 2 percent, we would expect, ceteris paribus, that the price level would

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According to the quantity theory of money, MV = PY, where M is the money supply, V is velocity, P is the price level, and Y is real output. Assuming velocity is constant, if the money supply increases by 2 percent, then the nominal GDP (PY) must also increase by 2 percent. Therefore, the price level (P) must increase by 2 percent as well.

If We Assume That Velocity Is Constant, and If the Money