The constant velocity of money in the quantity equation implies that any increase in the money supply has to lead directly to:
A) an increase in P.
B) an increase in V.
C) an increase in Y.
D) a decrease in P.

Question

Quizplus · Accepted Answer

The quantity equation is MV = PY. If V (velocity) is constant and M (money supply) increases, then either P (price level) or Y (output) must increase. Typically, in the short run, an increase in M leads to an increase in P, assuming Y is constant.

The Constant Velocity of Money in the Quantity Equation Implies