According to the quantity theory of money, if the money supply increases by 12 percent, then in the long run, prices go:
A)down by 12 percent.
B)up by less than 12 percent.
C)up by 12 percent.
D)up by more than 12 percent.

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that if the money supply increases by a certain percentage, and if the velocity of money and the quantity of goods and services in the economy remain constant, then the price level will increase by the same percentage. Therefore, a 12 percent increase in the money supply would lead to a 12 percent increase in prices in the long run.

According to the Quantity Theory of Money, If the Money