According to the quantity theory of money, an increase in the quantity of money will increase the price level,
A)increase real GDP, but decrease the velocity of circulation.
B)decrease real GDP, and increase the velocity of circulation.
C)but have no effect on real GDP or the velocity of circulation.
D)have no effect on real GDP, and will decrease the velocity of circulation.
E)increase real GDP, and increase the velocity of circulation.

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that an increase in the quantity of money will increase the price level but will not affect real GDP or the velocity of circulation in the long run. The theory assumes that velocity is stable and that the economy is at or near full employment, so changes in the money supply only affect prices.

According to the Quantity Theory of Money, an Increase in the Quantity