Question

According to classical economists, a. both V and Q are variable for an economy in short-run equilibrium. b. prices are rigid. c. changes in M cause changes in V. d. the velocity of money is constant.

Answer 1

The average price of goods and services equals the contribution of money to the economy. Velocity and quantity are constant in the short run. So, a change in money supply leads to changes in price

What is Quantity Theory of Money?

Monetary economics is a branch of economics that studies different perspectives on money. One of the main research areas of this economic sector is quantity theory of money (QTM).

The quantity theory of money was developed by Irving Fisher

According to the quantity theory of money :

Money supply x velocity = price x quantity

Velocity and quantity are constant in the short run. So, a change in money supply leads to changes in price

Thus,According to classical economists,  the velocity of money is constant. Option D is correct statement.

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