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%

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)

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.

If the money supply increases, while prices and velocity remain constant, real GDP will:

In 2022, real GDP in Country X grew by 2%, the money supply rose by 3%, and the nominal interest rate was 0%.Thus, the inflation rate was %, and the real interest rate was %, assuming the velocity of money (V) remained fixed.

You are the head of the Reserve Bank and, using the quantity theory of money, you want to maintain 2 percent long-run inflation. If the real GDP growth is 4 percent and velocity is constant, you suggest aSelect one alternative:2 percent money supply growth.6 percent interest rate.2 percent interest rate.0 percent money supply growth.6 percent money supply growth.