If M increases, and V remains constant:
A)P must rise.
B)Q must rise.
C)P and Q must each rise.
D)Any of the above may happen, but none of the above must happen.

Question

If M increases, and V remains constant:
A)​P must rise.
B)​Q must rise.
C)​P and Q must each rise.
D)​Any of the above may happen, but none of the above must happen.

Quizplus · Accepted Answer

The equation M*V = P*Q (where M is money supply, V is velocity of money, P is price level, and Q is quantity of goods and services produced) shows that if M increases and V remains constant, it could lead to an increase in P, an increase in Q, or an increase in both P and Q. Therefore, there is no single outcome that must happen, making D the correct choice.

If M Increases, and V Remains Constant