Asked by Jegam Rijal on May 14, 2024
Verified
If the money supply increased by 10% and at the same time velocity decreased by 10%, then according to the quantity equation there would be no change in the price level.
Money Supply
The complete aggregation of monetary assets within an economy at a particular point, including cash, coins, and the funds in checking and savings accounts.
Velocity
The rate at which money circulates within an economy, often measured as the ratio of nominal GDP to the money supply.
Price Level
An index that measures the average relative level of prices of goods and services in an economy over a period of time.
- Acquire knowledge on the quantity theory of money and its economic implications.
Verified Answer
JM
jathishan mohanMay 19, 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 quantity of goods and services produced). If M increases by 10% and V decreases by 10%, the effects on the left side of the equation cancel each other out, leaving PQ (the product of the price level and the quantity of goods and services) unchanged, assuming Q is constant.
Learning Objectives
- Acquire knowledge on the quantity theory of money and its economic implications.