Question 29 In the classical view, raising money supply will only cause inflation because the real...
Question 29
In the classical view, raising money supply will only cause inflation because
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the real GDP output and the velocity of money circulation are fixed. |
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the velocity of money circulation is unpredictable. |
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people will foresee inflation in the future with rational expectation. |
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fiscal policy does not work in the short run. |
Homework Answers
Ans) the correct option is a) the real GDP output and the velocity of money circulation are fixed.
The quantity theory of money says : MV = PY
If velocity( V) and real gdp ( Y) are constant increase in money supply ( M) will lead to inflation or increased prices (P)
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Question 29
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