According to the quantity theory of money,if the velocity of money and physical output are held constant,and increase in the money supply will lead to
A) a proportional decrease in the price level
B) a proportional increase in the price level
C) no change in the price level
D) all of the above are possible outcomes

Question

Quizplus · Accepted Answer

According to the quantity theory of money, if the velocity of money and physical output are held constant, an increase in the money supply will lead to a proportional increase in the price level. This is because there is more money in the economy chasing the same amount of goods and services, leading to an increase in demand and, therefore, prices. Options A and C are not possible outcomes according to the quantity theory of money. Option D cannot be the answer as all outcomes cannot be possible at the same time.

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