The quantity theory of money states that in the long run
A) an increase in the quantity of money increases real GDP by a smaller percentage.
B) the price level will not consistently rise, it will fluctuate.
C) a rise in the price level rises causes the quantity of money to increase.
D) an increase in the quantity of money results in an equal percentage increase in the price level.

Question

Quizplus · Accepted Answer

The quantity theory of money states that in the long run, an increase in the quantity of money results in an equal percentage increase in the price level. This is because the theory assumes that the velocity of money (the rate at which money changes hands) and real GDP are constant in the long run, so an increase in the quantity of money simply leads to more money chasing the same amount of goods and services, causing prices to rise.

The Quantity Theory of Money States That in the Long