According to the quantity theory of money, increases in money lead to increases in
A) nominal GDP.
B) velocity.
C) potential GDP.
D) real GDP.
E) unemployment.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, increases in the money supply lead to proportional increases in nominal GDP. This is because the theory asserts that the velocity of money (the rate at which money changes hands in the economy) and the quantity of goods produced in the economy are relatively stable, so any increase in the money supply will result in a corresponding increase in prices and nominal GDP.

According to the Quantity Theory of Money, Increases in Money