Asked by Megan Quinn on Jun 11, 2024
Verified
If Y and V are constant and M doubles, the quantity equation implies that the price level
A) more than doubles.
B) changes but less than doubles.
C) doubles.
D) does not change.
Quantity Equation
An equation that relates the quantity of money in an economy to the nominal value of economic output.
Price Level
A measure of the average prices of goods and services in an economy at a specific time, indicating the cost of living or inflation.
- Apply the quantity theory of money to predict changes in nominal and real GDP affected by variations in money supply.
Verified Answer
LB
Lolita BridgesJun 18, 2024
Final Answer :
C
Explanation :
The quantity equation in economics, often represented as MV = PY (where M is the money supply, V is the velocity of money, Y is the real output, and P is the price level), implies that if Y (real output) and V (velocity of money) are constant, and M (money supply) doubles, then P (price level) must also double to maintain the equality. This is because the equation shows a direct proportionality between the money supply and the price level when all other factors are held constant.
Learning Objectives
- Apply the quantity theory of money to predict changes in nominal and real GDP affected by variations in money supply.