What is the relationship between money supply growth and the price level, as understood by a novice member of Congress?

The relationship between money supply growth and the price level is traditionally viewed as direct, meaning that as the money supply increases, prices tend to rise, all else being equal. However, the option selected indicates an indirect relationship with GDP growth.

Understanding this relationship properly involves recognizing that often, when the money supply grows, it can lead to increased spending (demand) in the economy. This increased demand can potentially stimulate GDP growth if the economy has the capacity to produce more goods and services without triggering inflation. However, if the economy is at or near full capacity, increased money supply can lead to higher prices instead of more output.

Thus, the most accepted view is that there is a direct relationship between money supply growth and the price level over time. This means that in the long-run, increases in the money supply will result in increases in the price level more than in output, which aligns with the quantity theory of money. In the context of the choices provided, it seems the selected answer doesn't accurately represent this crucial economic principle. The direct relationship with the price level is a fundamental concept in macroeconomic theory.