Question

Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P?

A. Y and V stay the same.
B. Y fell.
C. V rose.
D. V fell.

Answer 1

D. V fell.

Step-by-step explanation:

According to the quantity theory :

Money Supply x Velocity = Price x Output

If money supply is fixed, price is directly proportional to velocity.

If price fell, then velocity also fell.

V fell and Y rose