If M increases faster than V decreases:
A)nominal GDP increases.
B)nominal GDP decreases.
C)nominal GDP stays the same.
D)there is an indeterminate effect on nominal GDP.

Question

If M increases faster than V decreases:
A)​nominal GDP increases.
B)​nominal GDP decreases.
C)​nominal GDP stays the same.
D)​there is an indeterminate effect on nominal GDP.

Quizplus · Accepted Answer

In the equation of exchange, nominal GDP (P x Y) is equal to the product of money supply (M) and velocity of money (V). If M increases faster than V decreases, then the product of M and V will increase, leading to an increase in nominal GDP.

If M Increases Faster Than V Decreases