Suppose the money supply tripled,but at the same time velocity doubled and real GDP was unchanged.According to the quantity equation the price level
A)is 1.5 times its old value.
B)is 3 times its old value.
C)is 6 times its old value.
D)is the same as its old value.

Question

Quizplus · Accepted Answer

The quantity equation is 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 triples and V doubles, then MV increases by a factor of 6. Since Y is unchanged, P must increase by a factor of 6 to maintain the equality.

Suppose the Money Supply Tripled,but at the Same Time Velocity