According to the equation of exchange, increases in the money supply are translated into
A)increases in the velocity of money
B)decreases in real GDP
C)incrreases in real GDP
D)increases in the price level
E)increases in inflation

Question

Quizplus · Accepted Answer

According to the equation of exchange, MV = PQ, an increase in the money supply (M) will lead to an increase in the price level (P), assuming that the velocity of money (V) and real output (Q) remain constant. Therefore, choice D is the best answer.

According to the Equation of Exchange, Increases in the Money