According to the quantity theory of money,when the gap between the growth rate of money supply and the growth rate of real GDP widens,________.
A) the inflation rate increases
B) the inflation rate decreases
C) real interest rates increase
D) nominal interest rates decrease

Question

Quizplus · Accepted Answer

According to the quantity theory of money, when the growth rate of money supply exceeds the growth rate of real GDP, there is an increase in the overall supply of money in the economy which leads to increased demand for goods and services. As a result, producers increase their prices to capture this increased demand. This leads to an increase in the price level and, consequently, inflation. Therefore, the best choice is A – the inflation rate increases.

According to the Quantity Theory of Money,when the Gap Between