If velocity is relatively stable, then changes in the money supply:
A) relate negatively to changes in real GDP.
B) cause negatively related changes in nominal GDP.
C) relate positively to changes in nominal GDP.
D) cause positively related changes in illusion neutrality.

Question

Quizplus · Accepted Answer

When velocity is stable, changes in the money supply directly affect nominal GDP in a positive manner, according to the equation of exchange (MV = PQ), where M is the money supply, V is the velocity of money, P is the price level, and Q is real GDP.

If Velocity Is Relatively Stable, Then Changes in the Money