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Therefore, a percent change in the money supply added to a percent change in the velocity is equal to a percent change in nominal output.
( ).
In order to make calculations easier it is often assumed that the velocity of money is constant. If this is true, any changes in the money supply would directly and proportionately change nominal GDP. If the economy is at full employment it can further be assumed that real output is fixed. Therefore any change in the money supply will subsequently change the price level. Unfortunately real output is not fixed, and even at full employment, will fluctuate with the business cycles...
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