According to the quantity theory of money, if the money supply doubles, the:
A) output level must also triple.
B) velocity must also double.
C) output level must also double.
D) price level must also double.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, assuming constant velocity, doubling the money supply will result in a proportional increase in the price level. This is reflected in the equation MV = PQ, where M is the money supply, V is the velocity of money, P is the price level and Q is the level of real output. The equation shows that an increase in M will result in a proportional increase in P, but not necessarily in Q, which depends on other factors such as technology and resources.

According to the Quantity Theory of Money, If the Money