If real GDP depends only on capital, labor, and technology, a higher growth rate in the money supply will lead to
A)an increase in velocity.
B)an increase in the rate of productivity.
C)higher inflation.
D)lower inflation.
E)a decrease in velocity.

Question

Quizplus · Accepted Answer

A higher growth rate in the money supply will increase the availability of money in the economy, which in turn will increase aggregate demand. As a result, firms will increase their prices to capitalize on the higher demand, leading to higher inflation. Real GDP only depends on capital, labor, and technology, so changes in the money supply do not directly impact it.

If Real GDP Depends Only on Capital, Labor, and Technology