Other things remaining the same, if the quantity of money increases by a given percentage, then in the long run the ________ by the same percentage.
A) price level rises
B) price level falls
C) real interest rate rises
D) real interest rate falls
E) nominal interest rate falls

Question

Quizplus · Accepted Answer

This statement relates to the quantity theory of money which states that in the long run, an increase in the quantity of money leads to a proportional increase in prices. This is because the increase in the money supply leads to an increase in aggregate demand, thus resulting in a rise in prices.

Other Things Remaining the Same, If the Quantity of Money