Assuming that V is constant, what could result from an increase in M in the quantity equation?
A) a decrease in the price level
B) an increase in real GDP
C) a decrease in nominal GDP
D) an increase in the price level

Question

Quizplus · Accepted Answer

According to the quantity equation (MV=PY), an increase in M (money supply) would lead to an increase in PY (nominal GDP). Since V (velocity of money) is assumed to be constant, an increase in M would proportionally lead to an increase in P (price level). Therefore, the best choice is D, an increase in the price level.

Assuming That V Is Constant, What Could Result from an Increase