The quantity theory of money predicts that when the economy is at potential GDP, a 10 percent increase in the money supply results in a 10 percent

Question

Quizplus · Accepted Answer

According to the quantity theory of money, assuming that velocity and potential GDP remain constant, an increase in the money supply will lead to a proportionate increase in the aggregate price level. This means that the inflation rate will increase by the same percentage as the increase in the money supply. Thus, a 10 percent increase in the money supply will result in a 10 percent increase in the inflation rate, assuming the economy is at potential GDP.

The Quantity Theory of Money Predicts That When the Economy