According to the quantity theory of money, an increase in the quantity of money will increase the price level
A)but have no effect on real GDP or the velocity of circulation.
B)and increase real GDP and the velocity of circulation.
C)and increase real GDP but decrease the velocity of circulation.
D)and decrease real GDP and increase the velocity of circulation.
E)but have no effect on real GDP and will decrease the velocity of circulation.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, an increase in the quantity of money will lead to an increase in the nominal value of output, and if real output remains constant, then the price level will increase. However, real GDP and the velocity of circulation are not affected by the changes in the quantity of money, assuming that there are no real shocks to the economy.

According to the Quantity Theory of Money, an Increase in the Quantity