Question
Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that
Which of the following predictions can be made using the growth rates associated with the equation of exchange, given that velocity is stable and that the economy moves to its potential output (YP) in the long run?
Options.
A. If the money supply grows at a faster rate than growth in YP, there will be inflation.
B. If the money supply grows at a slower rate than growth in YP, there will be a reduction in the inflation rate
C. If the money supply grows at the same rate as growth in YP, the price level will fall and there will be deflation
D. If the money supply grows are the same rate as growth in YP, the price level will also increase at the same rate as growth in YP.
I think C is the correct answer but I want to make sure I got it right
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