According to the quantity theory of money,
A) V and Y are not affected by the quantity of money.
B) V and M are constant.
C) V and M are not affected by changes in the price level.
D) V and P are not affected by the quantity of money.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the equation of exchange is MV = PY, where M is the quantity of money, V is the velocity of money, P is the price level, and Y is the real output. The theory assumes that V and Y are constant in the short run, which implies that changes in M will lead to proportional changes in P. Therefore, V and Y are not affected by the quantity of money.

According to the Quantity Theory of Money