Given the quantity theory of money demand,a doubling of the money supply will lead to a

Question

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According to the quantity theory of money, MV=PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is the level of real output. Holding V and Y constant, a doubling of M would lead to a doubling of nominal output (PY) since MV=PY. Therefore, choice C is the correct answer. A halving of the velocity of money (choice A) would imply that money is being used less frequently, which is not a direct consequence of a doubling of the money supply. A doubling of the level of real output (choice B) would only occur if the increase in nominal output is accompanied by a proportional increase in the supply of goods and services, which is not guaranteed. A rise in the level of interest rates (choice D) is not a direct consequence of a doubling of the money supply according to the quantity theory of money.

Given the Quantity Theory of Money Demand,a Doubling of the Money