Asked by Luthando Bongobi on Jul 11, 2024
Verified
For a given level of money and real GDP, an increase in velocity would lead to an increase in the price level.
Velocity
The rate at which money circulates in an economy, calculated as the ratio of nominal GDP to the money supply.
Price Level
A measure of the average prices of goods and services in an economy at a specific point in time.
- Analyze the relationship between the money supply, velocity, price level, and real GDP through the quantity equation.
Verified Answer
AH
Alexander HartzlerJul 15, 2024
Final Answer :
True
Explanation :
According to the Quantity Theory of Money, MV = PQ (where M is the money supply, V is the velocity of money, P is the price level, and Q is the real GDP). If V (velocity) increases while M (money supply) and Q (real GDP) remain constant, P (price level) must increase to maintain the equality.
Learning Objectives
- Analyze the relationship between the money supply, velocity, price level, and real GDP through the quantity equation.