According to the quantity theory of money, what is the three-stage chain of events that occurs after an increase in the money supply?
A) increased saving, investment in capital, higher productivity
B) increase spending, higher prices, increased saving
C) higher prices, excess cash balances, higher productivity
D) excess cash balances, increased spending, higher prices

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that an increase in the money supply first leads to excess cash balances among the public. This excess cash then encourages increased spending on goods and services, which, due to the higher demand, leads to higher prices.

According to the Quantity Theory of Money, What Is the Three-Stage