If the Fed increases the money supply,then 1/P
A)falls,so the value of money falls.
B)falls,so the value of money rises.
C)rises,so the value of money falls.
D)rises,so the value of money rises.

Question

Quizplus · Accepted Answer

According to the equation of exchange MV = PQ, an increase in the money supply (M) will lead to an increase in nominal output (PQ). Assuming that the velocity of money (V) and the economy's output (Q) remain constant in the short run, if M increases, then P must fall. This means that the value of money falls, or in other words, inflation rises.

If the Fed Increases the Money Supply,then 1/P