If we assume that velocity is constant, and if the money supply increases by 6 percent, we would expect, ceteris paribus, that the price level would

Question

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According to the Quantity Theory of Money, MV = PT, where M is the money supply, V is velocity, P is the price level, and T is the level of transactions. Assuming velocity is constant, a 6 percent increase in the money supply (M) should lead to an equal increase in nominal GDP (PT). This means that the price level (P) should also increase by 6 percent. Therefore, choice B is the correct answer.

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