But does money supply directly boost nominal income, or does nominal income affect velocity and the demand for money?

ECONOMIST: Economics focus

The quantity theory of money holds that the money supply, multiplied by the rate at which it circulates (called velocity), equals nominal income.

ECONOMIST: Economics focus

Monetary velocity will pick up and nominal income and prices will rise.

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An increase in velocity means that the same monetary base would support a higher level of nominal GDP.

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