At a given interest rate, an increase in the nominal money supply ______ the level of income that is consistent with equilibrium in the market for real balances.
A) raises
B) lowers
C) does not change
D) may either raise or lower

Question

Quizplus · Accepted Answer

According to the quantity theory of money, an increase in the nominal money supply leads to an increase in the price level, which in turn leads to an increase in the level of income that is consistent with equilibrium in the market for real balances. Therefore, an increase in the nominal money supply raises the level of income that is consistent with equilibrium.

At a Given Interest Rate, an Increase in the Nominal