Question:

Velocity and money supply affect price level?

by  |  earlier

0 LIKES UnLike

In monetarism, how will each of the following affect the price level in the short run --

a. an increase in velocity

b. a decrease in velocity

c. an increase in the money supply

d. a decrease in the money supply

 Tags:

   Report

1 ANSWERS


  1. a. an increase in velocity - Temporary boost in real GDP

    b. a decrease in velocity - Temporary reduction in real GDP

    c. an increase in the money supply - Temporary boost in real GDP

    d. a decrease in the money supply - Temporary reduction in real GDP

    Price level assumed to remain relatively inflexible in the short-run (sticky prices, sticky wages, adaptive expectations, etc. Milton Friedman), thus change in any other variable in M/P=Y/V equation will require to be equilibrated by relevant change/offset in another variable.

    Also monetarists predict velocity to remain relatively stable in short-run (but not necessarily constant).

    In long-run RGDP is relatively stable, but price level flexible.

Question Stats

Latest activity: earlier.
This question has 1 answers.

BECOME A GUIDE

Share your knowledge and help people by answering questions.