According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also either a
A)rise in output or a rise in velocity.
B)rise in output or a fall in velocity.
C)fall in output or a rise in velocity.
D)fall in output or a fall in velocity.

Question

Quizplus · Accepted Answer

The quantity equation is MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the output. According to this equation, if the money supply (M) increases, the price level (P) would increase less than proportionately if there is either a rise in output (Q) or a fall in velocity (V), as both of these changes would absorb some of the impact of the increased money supply on the price level.

According to the Quantity Equation, the Price Level Would Change