The quantity theory of money states that if the velocity of money is stable or at least predictable,then:
A)the quantity of money in circulation determines real GDP in the short run.
B)the quantity of money in circulation determines aggregate spending.
C)the quantity of money in circulation determines both real GDP and the price level in the long run.
D)the quantity of money in circulation determines only the price level in the long run.
E)the quantity of money in circulation determines the potential output in the long run.

Question

Quizplus · Accepted Answer

The quantity theory of money, particularly in its classical form, posits that the quantity of money in circulation primarily influences the price level in the long run, assuming velocity is stable or predictable. It does not directly determine real GDP, aggregate spending, or potential output in the long run, but rather influences the general price level of goods and services.

The Quantity Theory of Money States That If the Velocity