The equation of exchange, M×V=P×QM×V=P×Q, relates to the quantity theory of money. In this equation, M represents the supply of money, V represents the velocity of money, P represents the price level, and Q is real output. Which of the statements describes an implication of this equation in the long run? Both money supply (M) and money velocity (V) are held constant. Changes in the money supply (ΔM)(ΔM) will balance out with changes in velocity (ΔV)(ΔV) . Changes in the money supply (ΔM)(ΔM) will balance out with changes in prices (ΔP)(ΔP) . Money supply increases (ΔM)(ΔM) will directly increase real GDP.
The equation of exchange, M×V=P×QM×V=P×Q, relates to the quantity theory of money. In this equation, M represents the supply of money, V represents the velocity of money, P represents the price level, and Q is real output. Which of the statements describes an implication of this equation in the long run? Both money supply (M) and money velocity (V) are held constant. Changes in the money supply (ΔM)(ΔM) will balance out with changes in velocity (ΔV)(ΔV) . Changes in the money supply (ΔM)(ΔM) will balance out with changes in prices (ΔP)(ΔP) . Money supply increases (ΔM)(ΔM) will directly increase real GDP.
Chapter20: Monetary Policy
Section: Chapter Questions
Problem 6SQ
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The equation of exchange, M×V=P×QM×V=P×Q, relates to the quantity theory of money. In this equation, M represents the supply of money, V represents the velocity of money, P represents the price level, and Q is real output.
Which of the statements describes an implication of this equation in the long run?
Both money supply (M) and money velocity (V) are held constant.
Changes in the money supply (ΔM)(ΔM) will balance out with changes in velocity (ΔV)(ΔV) .
Changes in the money supply (ΔM)(ΔM) will balance out with changes in prices (ΔP)(ΔP) .
Money supply increases (ΔM)(ΔM) will directly increase real GDP.
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