Question

multiple choice 1.111 points
according to the exchange equation, the price level would change less than proportionately with a rise in the money supply if there were also
either a rise in output or a rise in velocity.
either a rise in output or a fall in velocity.
either a fall in output or a rise in velocity.
either a fall in output or a fall in velocity.

Explanation:

The exchange equation is \( MV = PY \), where \( M \) is the money supply, \( V \) is the velocity of money, \( P \) is the price level, and \( Y \) is output. If \( M \) (money supply) rises, for \( P \) (price level) to change less than proportionately, either \( Y \) (output) must rise (so that \( PY \) increases more due to \( Y \) and less due to \( P \)) or \( V \) (velocity) must fall (so that the increase in \( M \) is offset by the decrease in \( V \), reducing the impact on \( P \)).

Answer:

either a rise in output or a fall in velocity.