For a given real exchange rate, a change in the quantity of money
A)brings a change in the exchange rate with no change in the price level.
B)brings a change in the price level with no change in the exchange rate.
C)brings a change in the price level and a change in the exchange rate.
D)has an unknown effect on the price level and the exchange rate.
E)has no effect on the exchange rate or the price level.

Question

Quizplus · Accepted Answer

In the context of the quantity theory of money and assuming other factors remain constant, an increase in the quantity of money in an economy typically leads to inflation (a change in the price level) and can affect the exchange rate by making the domestic currency less valuable relative to foreign currencies, thus changing the exchange rate.

For a Given Real Exchange Rate, a Change in the Quantity