Using the quantity theory of money, in the long run a 3 percent increase in the quantity of money leads to a 3 percent
A) increase in the price level.
B) increase in the real interest rate.
C) decrease in the price level.
D) decrease in the real interest rate.
E) increase in real GDP.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, in the long run, changes in the quantity of money lead to proportionate changes in the price level. This means that a 3 percent increase in the quantity of money will lead to a 3 percent increase in the price level, assuming that other factors such as velocity of money and real output remain constant. Therefore, option A is the correct answer.

Using the Quantity Theory of Money, in the Long Run