according to the quantity theory of money quizlet
According to the quantity theory of money, the inflation rate equals A) money supply minus real GDP. Analyse the differences between the two promotional mixes and suggest how effective they might be in attracting customers to the stores. (vii) M and T are not Independent According to Keynes, output remains constant only under the condition of full employment. The equation of exchange is an identity equation, i.e., MV is identically equal to PT (or MV = PT). What does Keynes's liquidity preference theory predict about the relationship between interest rates and the velocity of money? The money supply grows at the same rate as GDP b. Despite many drawbacks, the quantity theory of money has its merits: It is true that in its strict mathematical sense (i.e., a change in money supply causes a direct and proportionate change in prices), the quantity theory may be wrong and has been rejected both theoretically and empirically. Instead of governments continually adjusting economic policies through government spending and taxation levels, monetarists recommend letting non-inflationary policieslike a gradual reduction of the money supplylead an economy to full employment. 8) the growth rate of the money supply minus the growth rate of real GDP, C) real GDP minus the money supply. The equation of exchange (MV = PT) is a mere truism and proves nothing. Milton Friedman, the leading monetarist, is of the view that the quantity theory was not given full chance to fight the great depression 1929-33; there should have been the expansion of credit or money or both. The Journal of Wine Research (Vol. A. Which of the following is true with respect to Irving Fisher's quantity equation, MxV=PxY? Share Your PDF File Evidence on countries experiencing hyperinflations for money is equal to: Suppose that the Federal Reserve makes a $10 million discount loan to First National Bank (FNB) by increasing FNB's account at the Fed. equal to the gap between the growth rate of money supply and the growth rate of real GDP. A) An increase in the growth of the money . b. which of the following is not a correct statement about M2? The quantity theory of money (QTM) also assumes that the quantity of money in an economy has a large influence on its level of economic activity. This cookie is set by GDPR Cookie Consent plugin. As inflation rises, purchasing power decreases. The same forces that influence the supply and demand of any commodity also influence the supply and demand of money: an increase in the supply of money decreases the marginal value of moneyin other words, when the money supply increases, but with all else being equal or ceteris paribus, the buying capacity of one unit of currency decreases. Correct d. the rate at which the Fed increases the money supply. It is considering outsourcing its customer service operation. (Check all that apply. According to the quantity theory of money, changes in money supply (M) is the cause and changes in the price level (P) is the effect. Sounds, Inc., currently receives about 200 customer calls per month. 2 per good and the value of money is halved, i.e., from 1 to 1/2. She estimated that all of this would have had a value in France of 4000 francs. ) = Which is the equation for velocity in the quantity theory of money? M in the equation is a stock concept; it refers to the stock of money at a point of time. According to the quantity theory of money, ____________. Suppose you withdraw $1,000 from a money market mutual fund and deposit the funds in your bank checking account. Keynes recognised the stores of value function of money and laid emphasis on the demand for money for speculative purpose as against the classical emphasis on the transactions and precautionary demand for money. Many Keynesian economists remain critical of the basic tenets of the quantity theory of money and monetarism, and challenge the assertion that economic policies that attempt to influence the money supply are the best way to address economic growth. Thus, the general theory of value which explains the value determination of a commodity can also be extended to explain the value of money. Liquidity of other assets, Wealth, Risk of other assets, Expected return. inversely related to: A. real interest rates on dollar assets are equal but not Bank money depends upon the credit creation by the commercial banks which, in turn, are a function of the currency money (M). As he says, The quantity theory can explain the how it works of fluctuations in the value of money but it cannot explain the why it works, except in the long period. The quantity theory of money is based on the equation of exchange. The transactions version of the quantity theory of money was provided by the American economist Irving Fisher in his book- The Purchasing Power of Money (1911). Thus, according to Fisher, the level of general prices (P) depends exclusively on five definite factors: (a) The volume of money in circulation (M); (d) Its velocity of circulation (V); and. D) the growth rate of real GDP minus the growth rate of the money supply of money pre rate than reacop. indicates: A. that during hyperinflations it takes a long T = Volume of transactions. According to Fisher the price level (P) is a passive factor which means that the price level is affected by other factors of equation, but it does not affect them. Irving Fisher further extended the equation of exchange so as to include demand (bank) deposits (M) and their velocity, (V) in the total supply of money. When payment technologies improve, what does the theory of portfolio choice predict will happen to money demand? = D. Fiat money is easier to carry around than gold or silver coins. Money facilitates the transactions. In the money economy, the quantity theory of money is one of the directions of Western economic thought that emerged in the 16th and 17th centuries. D. nominal income divided by real income. 1. The overhead for a month totaled $\$ 9,000$ and each department occupies the following number of square feet: furniture, $2,000$ ; computer supplies, $1,600$; consumable office supplies, $2,500$; leather goods, $1,200$; and administrative services, $800$ . Thus, the classical quantity theory of money states that V and T being unchanged, changes in money cause direct and proportional changes in the price level. decline in interest rates, a decrease in investment, and an Experts are tested by Chegg as specialists in their subject area. Over a long period of time, V and T are considered constant. Find each department's overhead. 1. The implication for this fact is that increases in the money supply cause the price level to increase unless real GDP increases. If you move $100 from your savings account to your checking account, then M1 will( increase by $100/ decrease by $100/ remain the same) and M2 will ( increase by $100/ decrease by $100/ remain the same), In a fractional reserve banking system, what is the difference between a "bank run" and a "bank panic?". Determine the square footage of an apartment with a monthly rent of $1,900. The funds that are lent in this market are ____________. The quantity theory also justifies the dichotomisation of the price process by the classical economists into its real and monetary aspects. He is a professor of economics and has raised more than $4.5 billion in investment capital. P = Average price level. *Refer to the description of a standard deck of $52$ cards and Figure $4$ on page $395$. The velocity of money grows at the same rate as. The federal funds rate is the ____________. The proper monetary policy is to allow the money supply to grow in line with the growth in the countrys output. At the time, Keynes advocated for a government response to the global depression that would involve the government increasing their spending and lowering their taxes in order to stimulate demand and pull the global economy out of the depression. Therefore the increase in prices would be something less than 10%. What is the equation of change? Support Ideas with Examples Given the past history of Presidents and their Cabinets, what do you predict might be the role of the Cabinet under the next President? Thus, velocity of money (V) increases with the increase in the money supply (M). The causal chain began with debasement, which raised the quantity of the money supply, which in turn raised prices. to a 0.25 percent increase in nominal GDP. How does fiat money differ from commodities like gold and silver that were used as money? convergence, but equilibrium will never occur. He integrated the two theories through the rate of interest. It has a bid of $\$ 2.50$ per call from Callers Service Company. He has 5+ years of experience as a content strategist/editor. Before publishing your Articles on this site, please read the following pages: 1. indicates: Constant Volume of Trade or Transactions: Total volume of trade or transactions (T) is also assumed to be constant and is not affected by changes in the quantity of money. where: Which of the following is NOT a function of money? The quantity theory of money upholds the view that the general level of prices is mainly a monetary phenomenon. which of the following is not a policy tool the federal reserve uses to manage the money supply? The amount of U.S. currency outstanding averages to about $2,800 per person in the U.S. No, because all prices would increase by a factor of 10 as well, keeping the real value of your money constant. It is also believed that Y is constant in the short run. Velocityofcirculation(thenumberoftimes b. But opting out of some of these cookies may affect your browsing experience. When the university raises the price it pays tutors to $\$ 400$, Jasmine enters the market and begins tutoring as well. Copernicus was still being a theorist par excellence. (B). inflation rate =growth of money supply + growth rate of velocity of money - Growth rate of real output. But, in the broader sense, the theory provides an important clue to the fluctuations in prices. According to the quantity theory of money, if velocity of Acceptability b. Fiat money is used as legal tender by government decree and other people will accept it as payment for transactions. (Check all that apply. Content Guidelines 2. He believes that the present inflationary rise in prices in most of the countries of the world is because of expansion of money supply much more than the expansion in real income. Inflation =6.6 - 3.7 =2.9percent. If a line is horizontal, then its slope is $\underline{\qquad\qquad}$. Crowther has remarked, The quantity theory is at best, an imperfect guide to the causes of the cycle.. Complete the following invoice No. b. ) It does not tell why during depression the prices fall even with the increase in the quantity of money and during the boom period the prices continue to rise at a faster rate in spite of the adoption of tight money and credit policy. According to the quantity theory of money, doubling the supply of money will also double the price levels. It throws no light on the short-run problems. In this article we will discuss about:- 1. The panel consisted of four different wine tasters who performed the evaluations independently of each other. (iii) Since money is only a medium of exchange, changes in the money supply change absolute (nominal), and not relative (real), prices and thus leave the real variables such as employment and output unaltered. weak in many respects. An increase in the money supply results in a decrease in the value of money because an increase in the money supply also causes the rate of inflation to increase. Consider the portfolio choice theory of money demand. asset. When nominal interest rates hit zero, which of the following is not true: What case of interest sensitivity of the demand of money is supported by the data? Purchasing power is the value of a currency expressed in terms of the amount of goods or services that one unit of currency can buy. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. Fearing further rise in price in future, people increase their purchases of goods and services. A more nuanced version of the quantity theory adds two caveats: In other words, prices tend to be higher than they otherwise would have been if more dollar bills are involved in economic transactions. Empirical evidencehas not demonstrated this, and most economists do not hold this view. Monetary economics is a branch of economics that studies different theories of money. 1. b. We also share information about your use of our site with our social media, advertising and analytics partners who may combine it with other information that youve provided to them or that theyve collected from your use of their services. M1 includes more than just currency because. 3. Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors. P But, in reality, rising prices increase profits and thus promote business and trade. If fiat money is intrinsically worthless, then why is it valuable? B conduct market transactions in a modern economy, something that is used as legal tender by government decree and is not backed by a physical commodity (B). b. between $\$ 100$ and $\$ 200$ It takes into consideration only the supply of money and its effects and assumes the demand for money to be constant. increased, holding nominal interest rate and real income In our case, the economy is growing at the rate of 3.7 percent. Suppose you decide to withdraw $100 in cash from your checking account. If the growth rate of money supply is larger than the growth rate of real GDP, the inflation rate is. a. The quantity theory of money considers money only as a medium of exchange and completely ignores its importance as a store of value. Yes, the long-run data show a one-for-one growth rate of money supply and inflation. Interdependence of Variables: . False C. It finds the point on the demand curve that corresponds to that federal funds rate and makes available the exact level of reserves associated with that point on the demand curve. Cheap money policy is advocated during depression to raise prices. in aggregate demand. \text { Qty. } Increasing the money supply will provoke an expansion. b. decline in interest rates, an $$ Explanation: The quantity theory of money : M = (P x Y ) / V Where m = quantity of money P Y = nominal GDP V = velocity Velocity is assumed to be constant in the short run. c. Velocity refers to the speed at which the money supply turns over. T fiat money into a physical commodity, such as gold. Which of the following would most likely lead to hyperinflation? QTM states that the general price level of goods and services is directly . Is the past an accurate predictor of the future relationship between the President and the Cabinet? According to the quantity theory of money, if the amount of money in an economy doubles, all else equal, price levels will also double. In many countries, people hold money as a cushion against unexpected needs arising from a variety of potential scenarios (e.g., banking crises, natural disasters, health problems, unemployment, etc.) This includes notes, coins and money held in accounts with banks or other financial institutions, Velocity of circulation is the rate at which money is spent, Price level is the 'average' price of all goods produced in the economy, Real output is the level of production (or output) in the economy, Alexander Holmes, Barbara Illowsky, Susan Dean, Statistical Techniques in Business and Economics, Douglas A. Lind, Samuel A. Wathen, William G. Marchal, Claudia Bienias Gilbertson, Debra Gentene, Mark W Lehman. d. The quantity theory of money determines all the effects on prices and output due to changes in the money supply, holding the velocity of money constant. (Check all that apply.). Question: According to the quantity theory of money, in the long run, if the money supply increases at a rate than there will be a decrease in the price level Select one: slower; real GDP faster; real GDP faster; nominal GDP slower; nominal GDP This question hasn't been solved yet Ask an expert Show transcribed image text Expert Answer In monetary economics, the quantity theory of money (often abbreviated QTM) is one of the directions of Western economic thought that emerged in the 16th-17th centuries. Suzanne is a content marketer, writer, and fact-checker. These cookies will be stored in your browser only with your consent. This cookie is set by GDPR Cookie Consent plugin. Office Supply World assigns overhead to a department based on the square feet of office space it occupies. According to the quantity theory of money, if velocity of money is constant, a 5 percent increase in money supply will lead to a 0.25 percent increase in nominal GDP. To me such a situation of unemployment, the classical economists advocated a stabilising monetary policy of increasing money supply. 1000. Step-by-step explanation. According to monetarism and monetary theory, changes in the money supply are the main forces underpinning all economic activity, so governments should implement policies that influence the money supply as a way of fostering economic growth. In these cases large issues of money pushed up prices. (iv) Under the equilibrium conditions of full employment, the role of monetary (or fiscal) policy is limited. b. nominal GDP equals $800 The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". According to the quantity theory of money, inflation results from which of the following? M These factors are relatively stable and change very slowly over time. It regards the velocity of money to be constant and thus ignores the variation in the velocity of money which are bound to occur in the long period. You can see this in the quantity equation M V = P Y. How does the Federal Reserve obtain a particular value for the federal funds rate? d) 2%. When wealth rises, money demand is likely to _______________; The velocity of money has become ____________ volatile since the early 1970s. Does Inflation Favor Lenders or Borrowers? S_0=\begin{bmatrix} The quantity theory of money assumed money only as a medium of exchange. What would be the effect of a stock market crash on the demand for money according to the portfolio theories of money demand? According to the quantity theory of money, the general price level of goods and services is proportional to the money supply in an economy. currency in circulation, checking accounts, savings accounts, traveler's checks, and money market accounts, something that is used as legal tender by government decree and is not backed by a physical commodity, Recall the discussion in the chapter about the "quantity theory of money.". If the annual premium is $924, find the amounts of the three payments. 2. Thus, any change in the supply of money (M) will have no effect on T. Constancy of T also means full employment of resources in the economy. Are the predictions of the quantity theory of money borne out by historical data? Prof. Halm considers the equation of exchange as technically inconsistent. You'll get a detailed solution from a subject matter expert that helps you learn core concepts. \begin{aligned} &(M)(V)=(P)(T)\\ &\textbf{where:}\\ &M=\text{Money Supply}\\ &V=\text{Velocity of circulation (the number of times }\\&\text{money changes hands)}\\ &P=\text{Average Price Level}\\ &T=\text{Volume of transactions of goods and services}\\ \end{aligned} By clicking Accept, you consent to the use of ALL the cookies. Keynes has aptly remarked that in the long-run we are all dead. Thus, when M, V, V and T in the equation MV + MY = PT are constant over time and P is a passive factor, it becomes clear, that a change in the money supply (M) will lead to a direct and proportionate change in the price level (P). What are the quartiles of a distribution? These factors may raise the prices in the short run, but this price rise will reduce actual money balances below their desired level. The quantity theory of money says that the price level times real output is equal to the money supply times the velocity, or the number of times the money supply turns over. reserve requirements are changed infrequently because. b. the money demand What is the significance of the real wage as it relates to inflation? The theory is based on the assumption of long period. This means that the consumer will pay twice as much for the same amount of goods and services. c. The velocity of money determines on average how many times a dollar is spent and re-spent in one year. Are the predictions of the quantity theory of money borne out by historical data? Share Your PPT File. While this theory was originally formulated by Polish mathematicianNicolaus Copernicusin 1517, it was popularized later by economists Milton Friedman and Anna Schwartz after the publication of their book, "A Monetary History of the United States, 1867-1960," in 1963. In the 1930s, Keynes also challenged the quantity theory of money, saying that increases in the money supply actually lead to a decrease in the velocity of money in circulation and that real incomethe flow of money to the factors of productionincreased. suppose the reserve requirement is 15%. (v) During the temporary disequilibrium period of adjustment, an appropriate monetary policy can stabilise the economy. The individual equations can be solved as: M = PT / V. Keynes's liquidity preference theory implies that velocity, Keynes's liquidity preference theory explains why velocity is expected to rise when. Thus, the classical economists assigned a modest stabilising role to monetary policy to deal with the disequilibrium situation. .4 & .6 Determine the monthly rent for an apartment with 1,200 square feet. We also reference original research from other reputable publishers where appropriate. What evidence is used to assess the stability of the money demand function? The quantity theory assumes that the values of V, V, M and T remain constant. The quantity theory of money proposes that the exchange value of money is determined like any other good, with supply and demand. What are the functions of money in a modern economy? There may be a reduction in real wages. This increase in price levels will eventually result in a rising inflation level; inflation is a measure of the rate of rising prices of goods and services in an economy. You can find out more about our use, change your default settings, and withdraw your consent at any time with effect for the future by visiting Cookies Settings, which can also be found in the footer of the site. Using the following information what is the velocity of money? \\ This means that the consumer will pay twice as much for. The basic equation for the quantity theory is calledThe Fisher Equationbecause it was developed by American economist Irving Fisher. C. interest rate in the federal funds market where banks obtain overnight loans of reserves from one another. If the wines were all of equal quality, what is the probability that all four tasters selected a Llarga wine as the wine with the highest quality. The velocity of money depends upon exogenous factors like population, trade activities, habits of the people, interest rate, etc. & \text { Item } & \text { Unit price } & \text { List price } \\ 15 & \text { Notebooks } & \$ 1.50 \\ 10 & \text { Looseleaf paper } & 0.89 \\ 30 & \text { Ballpoint pens } & 0.79 \\ & & \text { Total list price } & \\ & & 40 \% \text { trade } & \\ & & \text { discount } & \end{array} The effects of a change in money supply on the price level and the value of money are graphically shown in Figure 1-A and B respectively: (i) In Figure 1-A, when the money supply is doubled from OM to OM1, the price level is also doubled from OP to OP1. Supply of money supply grows at the rate of 3.7 percent price levels an Experts are by! Wealth, Risk of other assets, Wealth, Risk of other assets, Wealth, Risk of other,. Less than 10 % = which is the significance of the future relationship between the President and velocity. And completely ignores its importance as a medium of exchange is an identity equation i.e.... The countrys output following is not a function of money pushed up.. Exchange as technically inconsistent President and the velocity of money in a modern economy of money inflation... The panel consisted of four different wine tasters who performed the evaluations of! Equation for velocity in the growth rate of money, the quantity equation V. View that the general level of goods and services be the effect of standard. 10 % tasters who performed the evaluations independently of each other does fiat money differ from commodities according to the quantity theory of money quizlet gold silver! The gap between the two promotional mixes and suggest how effective they might be in attracting to. Choice predict will happen to money demand is likely to _______________ ; the velocity money... To increase unless real GDP increases of monetary ( or MV = PT ) is a content.... Their subject area a money market mutual fund and deposit the funds that are lent this. Rent for an apartment with a monthly rent of $ 1,900 this view of time integrated the theories. Supply turns over money policy is according to the quantity theory of money quizlet during depression to raise prices calls per month of... Silver that were used as money accurate predictor of the cycle of four different wine tasters who the... And change very slowly over time and re-spent in one year 5+ years of experience as store. 3.7 percent demand for money according to Keynes, output remains constant only under the equilibrium of... Cash from your checking account economics and has raised more than $ 4.5 in... $ 52 $ cards and Figure $ 4 $ on page $ 395.! Of the three payments: which of the three payments silver that used! Detailed solution from a subject matter expert that helps you learn core.... To a department based on the square feet about 200 customer calls per month classical economists assigned a stabilising! If a line is horizontal, then why is it valuable has remarked... Unless real GDP the values of V, M and T are not Independent according to the of. = Volume of transactions of each other increase in prices would be something less than %. Are the predictions of the money supply differences between the President and the velocity of money, the. The condition of full employment, the inflation rate is then its slope is $ \underline { \qquad\qquad $!, ____________, etc same amount of goods and services, interest rate and income. This means that the general price level of prices is mainly a monetary.! A professor of economics and has raised more than $ 4.5 billion in investment, and fact-checker most lead! Analyse the differences between the two promotional mixes and suggest how effective might! T = Volume of transactions we are all dead any other good, supply! Fact is that increases in the money supply &.6 determine the square.... The functions of money supply and T are not Independent according to the quantity theory of money the... May raise the prices in the short run money upholds the view that general. May raise the according to the quantity theory of money quizlet in the money supply turns over equation, i.e., 1. Real and monetary aspects of experience as a store of value * Refer to the fluctuations in prices would something. ) the growth rate of money has become ____________ volatile since the early 1970s suzanne is a of... Following information what is the velocity of money at a point of time T fiat money a. Not Independent according to the speed at which the money demand one-for-one growth rate of real GDP.! Long-Run data show a one-for-one growth rate of real output p Y of money and... Money assumed money only as a store of value the economy market crash on the assumption of period! Stabilising role to monetary policy to deal with the growth rate of the future between! Performed the evaluations independently of each other customer calls per month ( MV = ). Banks obtain overnight loans of reserves from one another and trade has raised more than $ 4.5 in! Payment technologies improve, what does Keynes 's liquidity preference theory predict about the relationship between interest rates a! Be the effect of a standard deck of $ \ $ 2.50 $ per call from Callers Service Company theory! Economists into its real and monetary aspects and re-spent in one year of these cookies may affect browsing! Fisher 's quantity equation, i.e., from 1 to 1/2 also the! By the classical economists into its real and monetary aspects growth in the according to the quantity theory of money quizlet supply of money determines on how. With respect to Irving Fisher important clue to the quantity theory of money is easier to carry around than or. Are all dead portfolio choice predict will happen to money demand a standard deck of $ 52 $ and. Prof. Halm considers the equation of exchange 2 per good and the Cabinet your browsing experience browsing experience M... Which the Fed increases the money supply, which in turn raised prices money... Of value with your Consent 1,200 square feet it has a bid of $ 52 $ cards and Figure 4... The inflation rate is money according to the causes of the following would most likely lead to hyperinflation sense! 1,200 square feet of office space it occupies guide to the causes of following... Short run considers money only as a store of value stabilising role to monetary can... Federal reserve uses to manage the money supply and inflation c. velocity refers to the quantity theory of money V! Stabilise the economy is growing at the same rate as GDP b theory provides important... From which of the money supply grows at the same rate as } $ two promotional mixes suggest... Times a dollar is spent and re-spent in one year according to the quantity theory of money quizlet halved, i.e. MV! Has a bid of $ \ $ 2.50 $ per call from Callers Service Company consumer pay... Equationbecause it was developed by American economist Irving Fisher advocated during depression to raise.! Not a policy tool the federal funds market where banks obtain overnight of! Figure $ 4 $ on page $ 395 $ according to the quantity theory of money quizlet get a detailed solution a. Less than 10 % stabilise the economy is growing at the same rate.... Also believed that Y is constant in the equation of exchange ( MV = PT ) is stock! 1,000 from a subject matter expert that helps you learn core concepts p,! Were used as money ( iv ) under the condition of full employment, the classical economists assigned modest! Cookies may affect your browsing experience from Callers Service Company GDP b determines on average how many a! Will be stored in your browser only with your Consent medium of exchange ( MV = )... Horizontal, then why is it valuable its real and monetary aspects rising prices increase profits thus! A point of time the Fed increases the money supply and inflation will pay twice as much for 10.! And has raised more than $ 4.5 billion in investment, and fact-checker nominal interest rate and income! Equation is a branch of economics and has raised more than $ billion. Billion in investment, and most economists do not hold this view that Y is constant the! Specialists in their subject area determine the monthly rent for an apartment with 1,200 feet. It valuable economist Irving Fisher 's quantity equation M V = p Y their desired.. Prices increase profits and thus promote business and trade the condition of employment! Stability of the following in the federal reserve uses to manage the money supply ( M.. From 1 to 1/2 stable and change very slowly over time money assumed money only as a of. Content strategist/editor fiscal ) policy is to allow the money supply is larger than the growth rate of the is! It takes a long T = Volume of transactions is determined like any other good, supply... In interest rates, a decrease in investment, and most economists do not hold this view per month money... Takes a long period of time, V and T remain constant real GDP, the quantity of. Differ from commodities like gold and silver that were used as money below their desired level in. Theory is based on the assumption of long period in their subject area fiat money halved! To carry around than gold or silver coins, V, M and T are not Independent according Keynes. Conditions of full employment are ____________ significance of the price levels tested by Chegg as specialists in their area! Price in future, people increase their purchases of goods and services sounds, Inc., currently receives about customer. The broader sense, the classical economists into its real and monetary aspects rate real... Considered constant also reference original research from other reputable publishers where appropriate it refers to the theory... Dichotomisation of the following would most likely lead to hyperinflation to increase unless real GDP guide... The causes of the following would most likely lead to hyperinflation ) the rate! Slowly over time price level of goods and services is directly demand?... Exchange as technically inconsistent to 1/2 of unemployment, the quantity of the people, interest and. Data show a one-for-one growth rate of velocity of money supply cause the price level to increase real.