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

Question

Quizplus · Accepted Answer

According to 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 output. If there is a rise in the money supply (M), and either a rise in output (Y) or a fall in velocity (V), the price level (P) would change less than proportionately. This is because an increase in output or a decrease in velocity would partially offset the upward pressure on prices caused by the increase in the money supply. Therefore, choice B is the best answer as it includes both options of either a rise in output or a fall in velocity.

According to the Quantity Equation,the Price Level Would Change Less