According to the quantity theory of money, a 10 percent increase in the quantity of money ultimately leads to a 10 percent increase in
A) real GDP.
B) velocity.
C) the price level.
D) real national income.

Question

Quizplus · Accepted Answer

The quantity theory of money states that the level of prices in an economy is directly proportional to the amount of money in circulation. Therefore, a 10 percent increase in the quantity of money will lead to a 10 percent increase in the price level. It does not affect real GDP or real national income as these are determined by factors other than the quantity of money in circulation. Velocity may change due to changes in the quantity of money, but it is not directly proportional to it.

According to the Quantity Theory of Money, a 10 Percent