Answer to Question #49670 in Macroeconomics for Lacey Jenkins

Question

In context of the equation of exchange, which of the following is most likely to bring inflation, ceteris paribus?
a) a slight decline in velocity
b) increase in the money supply
c) increase in Q
d) none of the above

Answer 1

In context of the equation of exchange MV = PY, so inflation (or increase in the price level) may be caused by the increase in the money supply, ceteris paribus. That's why, as increase in the money supply is most likely to bring inflation, the right answer is b) increase in the money supply