Which of the following is TRUE regarding the quantity theory of money?
I.The theory predicts that in the long run the inflation rate equals the money growth rate minus the growth rate of real GDP.
II.The theory predicts that countries with high growth rates of money will have high inflation rates.
III.The theory predicts that increases in the growth rate of velocity lowers the inflation rate.

Question

Quizplus · Accepted Answer

I and II are true statements regarding the quantity theory of money. The theory indeed predicts that in the long run, the inflation rate is determined by the money growth rate minus the growth rate of real GDP, and that countries with high money growth rates will experience high inflation rates. Statement III is incorrect because the theory typically assumes velocity is constant or predictable in the long run, not that increases in its growth rate lower inflation.

Which of the Following Is TRUE Regarding the Quantity Theory