According to the quantity theory of money, a 15 percent increase in the quantity of money creates a 15 percent rise in
A) the velocity of circulation.
B) the price level.
C) the unemployment rate.
D) real GDP.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the increase in the quantity of money leads to an increase in aggregate demand, which, in turn, leads to an increase in the price level. The velocity of circulation and real GDP are not directly affected by the increase in the quantity of money in the short run. The unemployment rate may be affected in the long run if the increase in money supply leads to inflation and reduces real output, which can lead to higher unemployment.

According to the Quantity Theory of Money, a 15 Percent