The quantity theory of money predicts that increases in the money supply lead to non-inflationary increases in real GDP when

Question

Quizplus · Accepted Answer

According to the quantity theory of money, increases in the money supply lead to inflation if real GDP is at potential GDP or above. However, if real GDP is below potential GDP, the increase in the money supply can stimulate production and employment without leading to inflation.

The Quantity Theory of Money Predicts That Increases in the Money