When real GDP equals potential GDP, the quantity theory of money says that an increase in the quantity of money brings an equal percentage
A) increase in the price level.
B) increase in real GDP.
C) decrease in the price level.
D) decrease in velocity.
E) decrease in real GDP.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, an increase in the quantity of money leads to an increase in the price level. When real GDP equals potential GDP, any increase in the quantity of money will only be reflected in an increase in the price level, as there is no room for an increase in real output.

When Real GDP Equals Potential GDP, the Quantity Theory of Money