According to the Quantity Equation, Which of the Following Best

question 70

Multiple Choice

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

• A)If velocity is stable, an increase in the money supply creates a proportional increase in nominal GDP but not in the price level.
• B)If velocity is stable, an increase in the money supply creates a proportional increase in the price level and real GDP.
• C)If velocity is stable, an increase in the money supply creates an increase in the real GDP but not in the price level.
• D)With constant money supply and velocity, an increase in the money supply creates a proportional increase in the price level and nominal GDP

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Definitions:

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Supply Analysis

The examination of factors that influence the quantity of a product or service that the market can offer at various prices.

Equilibrium Price

The cost point where the amount of a product sought by buyers matches the amount made available by sellers, leading to a state of equilibrium in the market.

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