According to the quantity theory of money, if money velocity and real output remain constant, a 10 percent increase in the money supply tends to produce
Correct answer: B. A 10 percent rise in prices
- A. A 10 percent fall in prices
- B. A 10 percent rise in prices
- C. No change in the price level
- D. A 20 percent rise in real output
Explanation
The quantity equation is MV equals PY. With velocity and real output unchanged, a 10 percent increase in M is matched by approximately a 10 percent increase in the price level.
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