The quantity theory of money predicts that in the_________ , a 10 percent increase in the quantity of money leads to a 10 percent increase in ___________.
A) short run; velocity
B) long run; real GDP
C) long run; velocity
D) long run; price level

Question

Quizplus · Accepted Answer

The quantity theory of money states that in the long run, the increase in the quantity of money will lead to an equivalent increase in the price level. This is known as the quantitative theory of money or monetarism. The theory assumes that the velocity of money is constant in the long run.

The Quantity Theory of Money Predicts That in The_________