According to the quantity theory of money, a 10 percent increase in the money supply leads to a 10 percent increase in:
A) velocity.
B) unemployment.
C) the price level.
D) real GDP.

Question

Quizplus · Accepted Answer

The quantity theory of money states that changes in the money supply will have a proportional effect on the price level in the economy. Therefore, a 10 percent increase in the money supply will lead to a 10 percent increase in the price level (inflation). This theory does not suggest a direct relationship between the money supply and velocity, unemployment, or real GDP.

According to the Quantity Theory of Money, a 10 Percent