According to the growth version of the quantity equation, if the money supply doubles while all else stays constant, then:
A) real GDP doubles.
B) the inflation rate doubles.
C) the interest rates doubles.
D) nominal GDP doubles.

Question

Quizplus · Accepted Answer

According to the growth version of the quantity equation, MV=PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP. If M doubles while holding V, P, and Y constant, then the equation becomes 2M = PY. Therefore, nominal GDP (PY) must double to maintain equilibrium, so the answer is D. Real GDP does not necessarily have to double because it depends on changes in productivity and resources. The inflation rate doubles only if real GDP stays constant, which is not assumed in the question. The interest rate is not directly related to the quantity equation.

According to the Growth Version of the Quantity Equation, If