According to the assumptions of the quantity theory,if the money supply increases 5%

Question

Quizplus · Accepted Answer

According to the quantity theory of money, in the long run, the increase in the money supply leads to a proportionate increase in the price level. Real GDP remains unchanged, as the increase in the money supply does not affect the production capacity of the economy. Therefore, the correct answer is option B, where the price level would rise by 5%, but there is no impact on real GDP.

According to the Assumptions of the Quantity Theory,if the Money