Problem
(Quantity Theory of Money)What basic assumption about the velocity of money transforms the equation of exchange into the quantity theory of money? Also:
a. According to the quantity theory, what will happen to nominal GDP if the money supply increases by 5 percent and velocity does not change?
b. What will happen to nominal GDP if, instead, the money supply decreases by 8 percent and velocity does not change?
c. What will happen to nominal GDP if, instead, the money supply increases by 5 percent and velocity decreases by 5 percent?
d. What happens to the price level in the short run in each of these three situations?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.