When other things are equal and using the classical model, an increase in the money supply leads to an equal proportional _____ in the aggregate _____, with no effect on aggregate _____.
A) rise; output; price level
B) fall; price level; output
C) rise; price level; output
D) fall; output; price level

Question

Quizplus · Accepted Answer

According to the classical model, an increase in the money supply leads to an equal proportional rise in the aggregate price level, with no effect on aggregate output. This is known as the quantity theory of money.

When Other Things Are Equal and Using the Classical Model