According to the quantity theory of money, in the long run
A) the quantity of money in the economy will always be just the right amount.
B) an increase in the quantity of money creates an increase in the price level and in real GDP.
C) an increase in the quantity of money creates an increase the price level but no increase in real GDP.
D) None of the above answers are correct.

Question

Quizplus · Accepted Answer

The quantity theory of money predicts that in the long run, an increase in the quantity of money will lead to a proportional increase in the price level but no increase in real GDP. This is because the economy's production capacity is fixed in the long run, so an increase in the money supply simply leads to inflation.

According to the Quantity Theory of Money, in the Long