The quantity theory of money suggests that a 20 percent decrease in the money supply causes a 20 percent decrease in real GDP.

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that a 20 percent decrease in the money supply leads to a proportionate decrease in prices, not necessarily real GDP. The impact on real GDP depends on various factors such as the elasticity of demand and supply, inflation expectations, and the overall state of the economy.

The Quantity Theory of Money Suggests That a 20 Percent