The crude quantity theory of money states that if \(\mathrm{M}\) rises by 20 percent, \(P\) will ( \(\mathrm{LO})\) a) fall by 20 percent d) rise b) fall e) rise by 20 percent c) stay the same

The crude quantity theory of money states that the general price level (P) is directly proportional to the money supply (M). This theory is often expressed with the equation: \(P = kM\), where k is a constant.

Since the general price level (P) is directly proportional to the money supply (M), if M increases by a certain percentage, P should increase by the same percentage.

We are given that M rises by 20%. Based on the crude quantity theory of money, we need to identify the reaction of P. Let's analyze the options: a) fall by 20 percent: This option contradicts the direct proportionality between M and P. b) fall: Same as option a, this contradicts the relationship between M and P. c) stay the same: Although less evident, this option also contradicts the direct proportionality. If M increases, P should change accordingly. d) rise: This option agrees with the relationship between M and P, but lacks the specific information about the percentage increase in P. e) rise by 20 percent: This option accurately describes the crude quantity theory of money. If M increases by 20%, P should also increase by 20%, given their direct proportionality.

Based on our analysis, the correct answer is: (e) rise by 20 percent.