Question

“If nominal GDP rises, velocity must rise.” Is this statement true, false, or uncertain? Explain your answer.

Short answer

The given statement is false.

Step-by-step solution

Step 1. Define GDP.

Gross domestic product (GDP) is a monetary measurement of the total value of all final services produced by countries in such a given time period.

Step 2. Explanation

The gross domestic product (GDP) is a financial measure of the total value of all final services generated by a country during a specific time period.

Nominal GDP $=P\times Y$

$V=\frac{P\times Y}{M}$

Increases in nominal gross domestic product can be offset by increases in $M$, increases in nominal gross domestic product may be insufficient to compensate for this. As a result, no changes in velocity are required.