CFA Practice Question

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CFA Practice Question

Assuming velocity is relatively constant and real income is relatively stable, an increase of 40 percent in the money supply will bring about an approximate change of ______ in the price level.

A. 4%
B. 40%
C. 0%
Correct Answer: B

Using the equation of exchange, MV = PQ, given these assumptions, there is a close relationship between changes in M and changes in P.

User Contributed Comments 3

User Comment
cong That's the conclusion of quantity theory fo money
khalifa92 this refers to as money neutrality theory.
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