The quantity theory of money argues that, in the long run, the percentage change in money will create an equal percentage change in

Question

Quizplus · Accepted Answer

According to the quantity theory of money, in the long run, the percentage change in the money supply will lead to an equal percentage change in the price level. This is often represented by the equation MV=PQ, where M is the money supply, V is the velocity of money (how fast it is spent), P is the price level, and Q is real GDP. This implies that if the central bank increases the money supply by, say, 5%, then over time, the price level should also increase by approximately 5%. Therefore, the correct answer is D, the percentage change in the money supply will create an equal percentage change in the price level.

The Quantity Theory of Money Argues That, in the Long