According to the quantity theory of money,a 3 percent increase in the money supply
A)causes the price level to rise by 3 percent.
B)causes the price level to rise by less than 3 percent.
C)leaves the price level unchanged.
D)causes the price level to fall by 3 percent.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, there is a direct relationship between the quantity of money in an economy and the price level. Specifically, if the quantity of money increases, all else equal, the price level will also increase. The exact percentage increase in the price level will depend on other factors such as the velocity of money, but in general, a 3 percent increase in the money supply would cause a 3 percent increase in the price level. Therefore, the correct choice is A, which states that the price level would rise by 3 percent.

According to the Quantity Theory of Money,a 3 Percent Increase