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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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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