Question

question
if the velocity is changing over time but in a constant and predictable way, then ________.
select the correct answer below:
○ changes in the money supply will continue to have a predictable effect on nominal gdp
○ then the effect of changes in the money supply on nominal gdp becomes unpredictable.
○ changes in nominal gdp will continue to have a predictable effect on the supply of money
○ changes in the money supply will continue to have a predictable effect on real gdp
content attribution

Explanation:

According to the quantity theory of money \( MV = PY \) (where \( M \) is the money supply, \( V \) is the velocity of money, \( P \) is the price level, and \( Y \) is real output, and \( PY \) is nominal GDP). If \( V \) (velocity) changes in a constant and predictable way, then changes in \( M \) (money supply) will still have a predictable effect on \( PY \) (nominal GDP) because we can account for the change in \( V \) in the equation. Real GDP (\( Y \)) is affected by real - side factors (like technology, labor, capital in the long - run in a classical view) and not directly in a predictable way by just money supply changes when velocity is changing (as price level \( P \) can also adjust). Also, the causation in the quantity theory is usually from money supply (\( M \)) to nominal GDP (\( PY \)) rather than the other way around for the relationship in question.

Answer:

changes in the money supply will continue to have a predictable effect on nominal GDP