Which of the following statements is true of the quantity theory of money?
A) The theory is applicable only in the short run.
B) Predictions of the theory can be verified with data.
C) The theory states that inflation will always be positive.
D) The theory explains the relationship between growth in real GDP and changes in nominal interest rates.

Question

Quizplus · Accepted Answer

The quantity theory of money is a long-term theory used to explain the relationship between the supply of money and the price level in an economy. Predictions of the theory can be tested and verified with empirical data. The theory does not state that inflation will always be positive, and it also does not explain the relationship between growth in real GDP and changes in nominal interest rates. Therefore, options A, C, and D are not correct.

Which of the Following Statements Is True of the Quantity