The quantity theory of money is the idea that in the long run
A) the quantity of money is determined by banks.
B) the quantity of money serves as a good indicator of how well money functions as a store of value.
C) the quantity of money determines real GDP.
D) an increase in the growth rate of the quantity of money leads to an equal increase in the inflation rate.

Question

Quizplus · Accepted Answer

The quantity theory of money, often associated with the equation of exchange (MV = PQ), suggests that in the long run, an increase in the money supply leads to a proportional increase in the price level (inflation), assuming velocity (V) and real output (Q) are constant. This implies that the growth rate of the money supply directly affects the inflation rate, not real GDP or the other functions of money.

The Quantity Theory of Money Is the Idea That in the Long