The quantity theory of money says that a doubling of the growth rate in the money supply will, in the long run, lead toGroup of answer choicesa doubling of real GDP growth.a doubling of inflation.a decrease of inflation.a doubling of the price level.
Question
The quantity theory of money says that a doubling of the growth rate in the money supply will, in the long run, lead toGroup of answer choicesa doubling of real GDP growth.a doubling of inflation.a decrease of inflation.a doubling of the price level.
Solution
The Quantity Theory of Money suggests that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold. According to this theory, if the money supply grows at a faster rate than the real output of an economy, there will be inflation.
So, if the growth rate in the money supply doubles, it will lead to a doubling of inflation in the long run. This is because more money will be chasing the same amount of goods and services, leading to an increase in overall prices, which is the definition of inflation.
Therefore, the correct answer is: a doubling of the growth rate in the money supply will, in the long run, lead to a doubling of inflation.
Similar Questions
Key ideas→ In the long run, an increase in the quantityof money leads to an equal percentageincrease in the price level→ Nominal GDP = PY→ V = PY/M→ P = M(V/Y)→ (Inflation rate) = (Money growth rate) +(Growth rate of velocity) − (Real GDPgrowth rate)
Suppose that the money supply increases by 20 percent. If there is no inflation, what does thequantity theory of money tell us must happen to real GDP? (Assume that the velocity of money is constant.)Selected answer will be automatically saved. For keyboard navigation, press up/down arrow keys to select an answer.aIt must increase by more than 20%bIt must increase by less than 20%cIt stays the samedIt must increase by 20%
The simple quantity theory of money predicts the changes in Group of answer choicesthe money supply lead to proportional changes in the price level.the money supply do not affect the price level.the price level lead to proportional changes in velocity and GDP.velocity lead to proportional changes in the money supply.
In the long run, an increase in the money supply will lead toResponsesA a decrease in velocity. a decrease in velocity.B an increase in velocity.an increase in velocity.C a decrease in real GDP.a decrease in real GDP.D an increase in real GDP.
If the money supply increases, while prices and velocity remain constant, real GDP will:
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