The monetary authority of an economy wishes to raise the price level (PPP) to combat deflationary pressures. According to the classical Quantity Theory of Money, as represented by the Fisher equation of exchange MV=PQMV = PQMV=PQ, which of the following combinations of changes to the velocity of circulation (VVV) and the level of real national output (QQQ) would result in the smallest required increase in the money supply (MMM) to achieve this target?
Velocity of circulation (VVV) increases, Real national output (QQQ) increases
Velocity of circulation (VVV) decreases, Real national output (QQQ) decreases
Velocity of circulation (VVV) increases, Real national output (QQQ) decreases
Velocity of circulation (VVV) decreases, Real national output (QQQ) increases
327 exam-style questions on AQA A Level Economics 2.3 Economic performance, covering 2.3.1 Economic growth and the economic cycle, 2.3.2 Employment and unemployment, 2.3.3 Inflation and deflation, and 2.3.4 Possible conflicts between macroeconomic policy objectives. Each one has a worked solution and a mark scheme showing where the marks go.