The quantity theory of money ________.
A)implies that inflation equals the ratio of the growth rates of the money supply and of real income
B)provides central banks with a tool to prevent the rate of inflation from fluctuating
C)implies that,in the long run,changes in the money supply will be matched by changes in real income
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that the amount of money in circulation in an economy is directly proportional to the level of prices of goods and services. It does not imply that inflation equals the ratio of the growth rates of the money supply and of real income (A), nor does it provide central banks with a tool to prevent the rate of inflation from fluctuating (B). It also does not imply that changes in the money supply will be matched by changes in real income in the long run (C), as it primarily suggests a direct relationship between money supply and price levels, rather than real income.

The Quantity Theory of Money ________