According to the quantity theory of money, nominal GDP will double if the money supply is
A) reduced by one-half.
B) reduced threefold.
C) doubled.
D) tripled.

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that if the money supply is doubled, holding everything else constant (like velocity of money and real output), the nominal GDP will also double. This is based on 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 real GDP. Doubling M would lead to a doubling of PQ, which is the nominal GDP.

According to the Quantity Theory of Money, Nominal GDP Will