According to the classical view, to prevent price-level changes when real output is growing by 3 per cent per year, the money supply must
A)decrease by 3 per cent per year.
B)increase by 3 per cent per year.
C)increase by more than 3 per cent per year.
D)remain constant.

Question

Quizplus · Accepted Answer

According to the classical view, to maintain stable prices when real output grows by 3%, the money supply should also increase by 3% to match the growth in output, preventing inflation or deflation.

According to the Classical View, to Prevent Price-Level Changes When