In the long run, an increase in the money supply
A)is expected to lead to a decrease in velocity.
B)has no predictable effect on nominal GDP.
C)is expected to lead to an increase in velocity.
D)is expected to lead to a decrease in nominal GDP.
E)is expected to lead to an increase in nominal GDP.

Question

Quizplus · Accepted Answer

This is the quantity theory of money, which states that an increase in the money supply will lead to an increase in nominal GDP in the long run, assuming velocity (the speed at which money changes hands) and real GDP remain constant.

In the Long Run, an Increase in the Money Supply