Question

Consider the equation of exchange MV=Py. If money stock rises and velocity and output are constant, prices go ______. If money stock rises and prices and output are constant, velocity goes ______.

Answer 1

1. Up

2. Up

Step-by-step explanation:

Quantity theory of money is a theory that describes the relationship between the money supply and price level in an economy, indicating that the relationship is directly proportional to one another.

Also, the theory indicated that when money stock rises and prices and output are constant, then there is higher inflation rates, which then results to increase in the rates of velocity.

Hence, Considering the equation of exchange MV=Py.

Then, If money stock rises and velocity and output are constant, prices go UP. If money stock rises and prices and output are constant, velocity goes UP as well.