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WAEC Economics 1994 Question 39

Question 39

Money and Inflation

The Quantity Theory of Money states that an increase in the quantity of money would bring about

  1. A.a geometrical rise in prices
  2. B.an unequal rise in prices
  3. C.a proportionate rise in prices
  4. D.an absolute rise in prices
  5. E.a less than proportionate increase in prices
Show the answer and explanation

Answer: C (a proportionate rise in prices)

Explanation

From MV = PT with V and T constant, prices change in the same proportion as the money supply.