According to the Quantity Equation, When Velocity Is Stable, Which

question 86

Multiple Choice

According to the quantity equation, when velocity is stable, which of the following best describes the effects of an increase in the money supply?

• A) An increase in the money supply causes a proportional increase in nominal GDP but not in the price level.
• B) An increase in the money supply causes a proportional increase in the price level and real GDP.
• C) An increase in the money supply causes a proportional increase in the real GDP but not in the price level.
• D) An increase in the money supply causes a proportional increase in the price level and nominal GDP.