The quantity theory of money implies that an increase in the money supply will ultimately:
A)increase the price level and leave real GDP unchanged.
B)affect only the level of real GDP; the price level will remain unchanged.
C)increase the price level and the level of real GDP.
D)decrease the price level and the level of real GDP.

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that an increase in the money supply will lead to an increase in the price level (inflation) while leaving real GDP unchanged in the long run, as it assumes prices are flexible and the economy is at or returns to its potential output.

The Quantity Theory of Money Implies That an Increase in the Money