The pre-1930 classical economists thought the primary effect of an increase in the money supply would be
A)an increase in real GDP.
B)a reduction in velocity.
C)a decrease in unemployment.
D)a proportional increase in prices.

Question

Quizplus · Accepted Answer

Pre-1930 classical economists believed in the quantity theory of money which states that the primary effect of an increase in the money supply is a proportional increase in prices. This view was based on the assumption that increases in the money supply would not affect real economic variables such as output, employment, or interest rates in the long run.

The Pre-1930 Classical Economists Thought the Primary Effect of an Increase