In our lectures we assumed that the velocity of money was constant in the quantity equation of money which suggests that MV = PY where M is the nominal money supply, Vis the velocity of money, P is the price level and y is the level of output (or real GDP). Now let's relax the assumption of constant velocity of money and suppose that the velocity of money is positively related to the price level (as prices increase and the purchasing power of the currency declines, people start to get rid of the currency) in the following way: V = Pª where 0 < a < 1. What kind of a relationship does exist between the parameter a and inflation = AP/P\
