Suppose that the money supply increases by 10 percent while real GDP increases by 6 percent.What does the quantity theory of money predict the inflation rate will be?
A) 4 percent
B) 6 percent
C) 10 percent
D) 16 percent

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the inflation rate is equal to the percentage increase in the money supply minus the percentage increase in real GDP. In this case, the inflation rate can be calculated as:

inflation rate = 10% - 6% = 4%

Therefore, the correct answer is A) 4 percent.

Suppose That the Money Supply Increases by 10 Percent While