According to the quantity theory of money, a 3 percent increase in the money supply

a. leaves the price level unchanged.

b. causes the price level to fall by 3 percent.

c. causes the price level to rise by 3 percent.

d. causes the price level to rise by less than 3 percent.

c. causes the price level to rise by 3 percent.

Explanation:

The quantity theory of money insinuates that there is a direct correlation between the quantity of money in a country and the general price level of products and services. The theory views money like any other commodity in the market. If the supply of money increases, its 'price' or its marginal value decreases.

As per the quantity theory of money, the relationship between money and prices is direct and propositional. An increase in the money supply is followed by a proportionate increase in the prices of goods and services.