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Course: Macroeconomics > Unit 5

Lesson 3: Money growth and inflation

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Money growth and inflation

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Assume that wages and prices are fully flexible and all inflation is correctly anticipated.

According to the quantity theory of money, what would be the impact of expansionary monetary policy on real output and the price level?

(Choice A)
Real output increases, no impact on price level
(Choice B)
Real output increases, price level increases
(Choice C)
Real output decreases, price level decreases
(Choice D)
No impact on real output, no impact on the price level
(Choice E)
No impact on real output, price level increases