The quantity theory of money implies that over the long run,the inflation rate will ________.
A) equal the velocity of money
B) equal the nominal interest rate
C) equal the growth rate of M2 minus the growth rate of real output
D) equal the growth rate of M2 plus the growth rate of real output

Question

Quizplus · Accepted Answer

The quantity theory of money, often associated with the equation of exchange (MV = PQ), suggests that over the long run, the inflation rate (growth rate of the price level, or P) will equal the growth rate of the money supply (M2) minus the growth rate of real output (Q). This is because, with velocity (V) assumed constant, any excess growth in money supply relative to real output growth leads to inflation.

The Quantity Theory of Money Implies That Over the Long