Other things constant, the quantity theory of money concludes that any increase in the quantity of money
A) decreases the demand for money.
B) decreases the aggregate price level.
C) decreases the aggregate level of nominal income.
D) proportionally increases the price level.

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that an increase in the quantity of money in an economy, holding everything else constant, will lead to a proportional increase in the price level. This is based on the equation of exchange (MV = PQ), where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of goods and services produced. If the money supply increases and V and Q remain constant, then P must increase proportionally.

Other Things Constant, the Quantity Theory of Money Concludes That