If when the money supply changes,real output and velocity do not change,then a 2 percent increase in the money supply
A)decreases the price level by 2 percent.
B)decreases the price level by less than 2 percent.
C)increases the price level by less than 2 percent.
D)increases the price level by 2 percent.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, MV=PY where M is the money supply, V is the velocity of money, P is the price level, and Y is real output. If Y and V remain constant and the money supply (M) increases, then P must increase by the same percentage as M. Therefore, a 2 percent increase in the money supply will lead to a 2 percent increase in the price level.

If When the Money Supply Changes,real Output and Velocity Do