According to the quantity theory of money, in the long run, an increase in the quantity of money results in an equal percentage increase in .
A) the price level
B) the growth rate of potential GDP
C) the growth rate of real GDP
D) the inflation level

Question

Quizplus · Accepted Answer

The quantity theory of money states that in the long run, the quantity of money in an economy is directly proportional to the price level. Therefore, an increase in the quantity of money in the long run will result in an equal percentage increase in the price level. Choice B is incorrect because the growth rate of potential GDP is determined by factors such as capital accumulation, technology, and labor force growth, and is not directly related to the quantity of money. Choice C is incorrect because the growth rate of real GDP is determined by changes in labor productivity, which are not directly related to changes in the quantity of money. Choice D is incorrect because inflation is a measure of the rate at which the price level is increasing, and is not directly related to the quantity of money.

According to the Quantity Theory of Money, in the Long