According to the quantity theory of money, if M's growth is lower than Q's, then:
A) V falls.
B) V rises.
C) P stays the same
D) P falls.
E) P rises

Question

Quizplus · Accepted Answer

According to the quantity theory of money, MV= PQ. If the growth of money supply, M, is lower than the growth of output, Q, it means that V (velocity of money) must fall in order to maintain the equation. This implies that each dollar of money supply is being used to purchase fewer goods and services. As a result, prices, P, must fall. Therefore, the correct answer is D.

According to the Quantity Theory of Money, If M's Growth