The relationship between money supply,output,and the overall level of prices is illustrated by:
A)the classical theory of inflation.
B)the neutrality of money.
C)the aggregate price level.
D)the measure of real output.

Question

Quizplus · Accepted Answer

The classical theory of inflation explains that changes in the money supply have a direct effect on the overall level of prices, and that in the long run, changes in the money supply do not affect real output or employment. This theory highlights the importance of controlling the money supply to maintain price stability.

The Relationship Between Money Supply,output,and the Overall Level of Prices