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) long run; real GDP
B) short run; the velocity of circulation
C) long run; the velocity of circulation
D) long run; price level

Question

Quizplus · Accepted Answer

The quantity theory of money, particularly in its classical form, suggests that in the long run, a change in the quantity of money in an economy directly affects the price level proportionally, assuming velocity of money and real GDP remain constant. Therefore, a 10 percent increase in the quantity of money is predicted to lead to a 10 percent increase in the price level in the long run.

The Quantity Theory of Money Predicts That in the ________