Question

mv = py

a. the assumption of a constant velocity of money v implies that a change in the quantity of money causes
an equal and opposite change in nominal gdp.
a proportionate change in nominal gdp.
a proportionate change in real gdp.
an equal and opposite change in real gdp.

b. if we assume further that real output y is fixed by the factors of production and the production technology, then the quantity of money determines
the velocity of money.
the real interest rate.
real gdp.
the price level.

c. when we make the assumption described in part b, the quantity equation becomes a theory known as the
general theory of employment, interest, and money.
permanent income hypothesis.
quantity theory of money.
quantity theory of the price level.

Explanation:

a. The quantity - equation of money is $MV = PY$, where $M$ is the money supply, $V$ is the velocity of money, $P$ is the price level and $Y$ is real output. If $V$ is constant, a change in $M$ will cause a proportionate change in $PY$ (nominal GDP).
b. If $V$ is constant and $Y$ is fixed by factors of production and technology, from $MV = PY$, $M$ determines $P$ (the price level) as $V$ and $Y$ are non - changing.
c. When $V$ is constant and $Y$ is fixed, the quantity equation $MV = PY$ becomes the quantity theory of money which shows the relationship between money supply and price level.

Answer:

a. a proportionate change in nominal GDP.
b. the price level.
c. quantity theory of money.