According to the quantity theory of money currently used by monetarists, assuming velocity is constant (at a value of 5), a 10 percent increase in the money supply will raise

Question

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According to the quantity theory of money, an increase in the money supply leads to a proportional increase in nominal GDP. As velocity is assumed to be constant at a value of 5, a 10 percent increase in the money supply will lead to a 10 percent increase in nominal GDP. Real GDP, on the other hand, is not directly affected by changes in the money supply as it is adjusted for inflation. Therefore, option C is the correct answer.

According to the Quantity Theory of Money Currently Used by Monetarists