The quantity theory of money ________.
A)focuses mainly on the close link between short run fluctuations in velocity and the price level
B)works very well for the U.S.but it does not hold empirically for other countries in the long run
C)provides a long run theory of inflation because it is based on the assumption that prices and wages are fully flexible
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The quantity theory of money provides a long run theory of inflation because it is based on the assumption that prices and wages are fully flexible. Therefore, option C is correct. Option A is incorrect as the theory focuses on the long run relationship between the money supply, price level, and real output. Option B is incorrect as while it may not hold empirically for all countries in the long run, it is not limited to the US. Option D is incorrect as option A is incorrect. Option E is incorrect as there is a correct answer.

The Quantity Theory of Money ________