According to the assumptions of the quantity theory of money,if the money supply decreases by 7 percent,then
A)nominal and real GDP would fall by 7 percent.
B)nominal GDP would fall by 7 percent;real GDP would be unchanged.
C)nominal GDP would be unchanged;real GDP would fall by 7 percent.
D)neither nominal GDP nor real GDP would change.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, a decrease in the money supply leads to a proportional decrease in nominal GDP, assuming velocity and real GDP are constant. Real GDP remains unchanged in the short run.

According to the Assumptions of the Quantity Theory of Money,if