Other things the same,continued increases in the money supply lead to
A)continued increases in the price level and real GDP.
B)continued increases in the price level but not continued increases in real GDP.
C)continued increases in real GDP but not continued increases in the price level.
D)a one-time permanent increase in both prices and real GDP.

Question

Quizplus · Accepted Answer

The Quantity Theory of Money states that an increase in the money supply leads to a proportional increase in the price level. However, it does not necessarily lead to an increase in real GDP as that depends on other factors such as the state of technology, labor force, and capital stock. Therefore, continued increases in the money supply will lead to continued increases in the price level but not necessarily continued increases in real GDP.

Other Things the Same,continued Increases in the Money Supply Lead