Which of the following is true regarding the quantity theory of money?
I. The theory predicts that in the long run the inflation rate equals the money growth rate minus t growth rate of real GDP.
II. The theory predicts that countries with high growth rates of money will have high inflation rate
III. The theory predicts that increases in the growth rate of velocity lowers the inflation rate.
A) II and III
B) I and II
C) I, II and III
D) I and III

Question

Quizplus · Accepted Answer

The first statement is a correct prediction of the quantity theory of money. The second statement is also true as the theory predicts that countries with high growth rates of money will have high inflation rates. However, the third statement is false as the theory predicts that increases in the growth rate of velocity will increase inflation, not reduce it.

Which of the Following Is True Regarding the Quantity Theory