According to the quantity theory of money, an increase in the money supply will cause:

Question

Quizplus · Accepted Answer

According to the quantity theory of money, an increase in the money supply leads to a proportional increase in nominal GDP. This is because an increase in the money supply results in more money circulating in the economy, leading to an increase in the demand for goods and services, and therefore, an increase in prices or inflation. As a result, nominal GDP, which measures the value of all goods and services produced in an economy, will increase proportionally. Option A and B are incorrect because the income velocity of money is not directly related to changes in the money supply. Option D is also incorrect as the quantity theory of money predicts that an increase in the money supply leads to an increase in nominal GDP, not a decrease.

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