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 growth rate of real GDP
B) the inflation level
C) the price level
D) the growth rate of potential GDP

Question

Quizplus · Accepted Answer

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 the price level. This is expressed by the equation MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real output. In the long run, changes in V and Y are assumed to be relatively stable, so an increase in M will lead to a proportional increase in P.

According to the Quantity Theory of Money, in the Long