Answer to Question #66821 in Macroeconomics for Andre
M –is supply of money or the quantity of the money in circulation,
V – is the speed of circulation,
P – is prices level,
Y –is the real output
The level of V is very stable and can be changed very difficult. For example it can be changed by the new technologies which can cause fastening of the money circulation. It means that if money supply changes, proportionally the nominal level of output (PY) will change. However, according to classical theory, real output changes take place very slowly and even in the short periods the output level can be fixed, that is why the nominal output change will be caused mainly by the proportional change in the prices level.
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