Consider two countries: Country A and Country B.If the gap between the growth rate of money supply and growth rate of real GDP is larger in Country A than in Country B,then,according to the quantity theory of money,________.
A) the inflation rate will be higher in Country A
B) the inflation rate will be lower in Country A
C) real interest rates will be higher in Country A
D) nominal interest rates will be lower in Country A

Question

Quizplus · Accepted Answer

According to the quantity theory of money, inflation is directly proportional to the growth rate of money supply and inversely proportional to the growth rate of real GDP. Therefore, if the gap between the growth rate of money supply and growth rate of real GDP is larger in Country A than in Country B, then the inflation rate will be higher in Country A.

Consider Two Countries: Country a and Country B