For the quantity theory of money to yield useful predictions, which of the following must be stable or predictable?
A) interest rates
B) fiscal policy
C) price level
D) velocity

Question

For the quantity theory of money to yield useful predictions, which of the following must be stable or predictable?  
A) interest rates 
B) fiscal policy 
C) price level 
D) velocity

Quizplus · Accepted Answer

The quantity theory of money posits that the amount of money in circulation is directly proportional to the price level when the velocity of money (the rate at which money changes hands) and the volume of goods and services produced in the economy are constant. Therefore, for the theory to yield useful predictions, the velocity of money must be stable or predictable.

For the Quantity Theory of Money to Yield Useful Predictions