If the Fed increases the money supply,the equilibrium value of money decreases and the equilibrium price level must increase.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, an increase in the money supply leads to an increase in aggregate demand, which in turn leads to higher prices. This means that the equilibrium price level must increase in response to an increase in the money supply.

If the Fed Increases the Money Supply,the Equilibrium Value of Money