If the money supply increased by 10% and at the same time velocity decreased by 10%, then according to the quantity equation there would be no change in the price level.

Question

Quizplus · Accepted Answer

According to the Quantity Theory of Money, MV = PQ (where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of goods and services produced). If M increases by 10% and V decreases by 10%, the effects on the left side of the equation cancel each other out, leaving PQ (the product of the price level and the quantity of goods and services) unchanged, assuming Q is constant.

If the Money Supply Increased by 10% and at the Same