According to the quantity theory of money, an increase in the money supply leads to:
A) an increase in prices, as there are more dollar bills spent on the same number of goods and services.
B) an increase in prices, as there are the same dollar bills spent on a greater number of goods and services.
C) a decrease in prices, as there are more dollar bills spent on the same number of goods and services.
D) a decrease in price, as there are the same dollar bills spent on a greater number of goods and services.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, an increase in the money supply leads to inflation, which means that there will be an increase in prices due to more money being spent on the same amount of goods and services. This is because there is now more money chasing the same amount of goods and services, resulting in an increase in demand and therefore, an increase in prices.

According to the Quantity Theory of Money, an Increase in the Money