According to the quantity theory of money, if the Federal Reserve increases money supply by 10 percent, then the price level will _____ by 10 percent, and real GDP will:

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that an increase in the money supply will lead to a proportional increase in the price level (inflation) if the velocity of money and real GDP remain constant. Real GDP is determined by physical factors like labor, capital, and technology, not the money supply, so it remains unchanged in this scenario.

According to the Quantity Theory of Money, If the Federal