According to the quantity theory of money, increases in the money supply lead to _____, which can cause:
A) increased production; higher productivity.
B) excess cash balances; increased spending.
C) excess cash balances; increased production.
D) increased production; excess cash balances.

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that increases in the money supply lead to excess cash balances among the public, which in turn leads to increased spending as people try to rid themselves of the excess cash by purchasing goods and services. This theory does not directly link money supply increases to higher productivity or increased production without considering the intermediate step of increased spending.

According to the Quantity Theory of Money, Increases in the Money