In the equation of exchange, an increase in M of 8 percent could be accompanied by changes in velocity, the price level and real GDP of:
A)0%, 4%, 4%.
B)0%, 8%, 0%.
C)0%, 0%, 8%.
D)all of the above

Question

In the equation of exchange, an increase in M of 8 percent could be accompanied by changes in velocity, the price level and real GDP of:​
A)​0%, 4%, 4%.
B)​0%, 8%, 0%.
C)​0%, 0%, 8%.
D)​all of the above

Quizplus · Accepted Answer

The equation of exchange is MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the real GDP. An 8% increase in M could be offset by various combinations of changes in V, P, and Q, making all the given options (A, B, C) possible scenarios.

In the Equation of Exchange, an Increase in M of 8