If long-run real GDP growth is determined by real changes in the economy,the quantity theory of money implies that:
A)changes in the money growth rate lead one-for-one to changes in the inflation rate in the long run.
B)changes in the money growth rate lead one-for-one to changes in the inflation rate but only in the short run.
C)changes in velocity lead one-for-one to changes in the inflation rate.
D)changes in the money growth rate lead to a greater than one-for-one change in the inflation rate in the long run.
E)none of the above

Question

Quizplus · Accepted Answer

According to the quantity theory of money, in the long run, changes in the money supply cause proportional changes in the price level. This means that changes in the money growth rate lead one-for-one to changes in the inflation rate in the long run. However, this relationship may not hold in the short run due to other factors that can affect prices, such as changes in velocity or supply shocks.

If Long-Run Real GDP Growth Is Determined by Real Changes