In the long run, according to the quantity theory of money and the classical macroeconomic theory, if velocity is constant, then ______ determines real GDP and ______ determines nominal GDP.
A) the productive capability of the economy; the money supply
B) the money supply; the productive capability of the economy
C) velocity; the money supply
D) the money supply; velocity

Question

Quizplus · Accepted Answer

According to the quantity theory of money and classical macroeconomic theory, the productive capability of the economy determines real GDP, while the money supply determines nominal GDP, assuming velocity is constant.

In the Long Run, According to the Quantity Theory of Money