If the velocity of money (V) and real output (Q) were increasing at approximately the same rate, then:
A)it would be impossible for monetary authorities to control inflation.
B)monetary acceleration would not lead to inflation.
C)inflation would be closely related to the long-run rate of monetary expansion.
D)none of the above

Question

If the velocity of money (V) and real output (Q) were increasing at approximately the same rate, then:​
A)​it would be impossible for monetary authorities to control inflation.
B)​monetary acceleration would not lead to inflation.
C)​inflation would be closely related to the long-run rate of monetary expansion.
D)​none of the above

Quizplus · Accepted Answer

In 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 the real output. If V and Q increase at the same rate, changes in M (monetary expansion) would directly affect P (price level), making inflation closely related to the rate of monetary expansion.

If the Velocity of Money (V) and Real Output (Q)