If money is neutral and velocity is stable, what does an increase in the money supply create a proportional increase in?
A) real output
B) both real and nominal interest rate
C) inflation rate
D) the price level

Question

Quizplus · Accepted Answer

According to the quantity theory of money, an increase in the money supply will lead to a proportional increase in the price level. This assumes that velocity remains stable, and real output is unaffected. Therefore, option D, the price level, is the correct choice.

If Money Is Neutral and Velocity Is Stable, What Does