According to the quantity theory of money,a 2 percent increase in the money supply

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the equation of exchange is MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of goods and services produced. If we assume that the velocity of money and the quantity of goods and services produced are constant in the short run, then a 2 percent increase in the money supply (M) will lead to a 2 percent increase in the price level (P). Therefore, choice D is the correct answer.

According to the Quantity Theory of Money,a 2 Percent Increase