If the money supply is held constant, an increase in nominal GDP leads to ________ in the velocity of money.
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A. B. C. D.D
The velocity of money, V, satisfies the equation, MV = GDP, where M is the money supply. If M is held constant while GDP increases, then V must increases.
Intuitively, this says that if the money supply is not changed, then for production and consumption of a higher GDP, each dollar must change hands more frequently.