Question

According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then a. the price level would be unchanged and real GDP would rise by 5 percent. b. the price level would rise by 5 percent and real GDP would be unchanged. c. both the price level and real GDP would rise by 5 percent. d. both the price level and real GDP would be unchanged.

Answer 1

C

Step-by-step explanation:

Quantity theory of money : money supply x velocity = price x output

money supply x velocity = nominal GDP

It is assumed that velocity is constant. So, if money supply increases, both the price level and real GDP would rise by 5 percent