According to the quantity theory of money:
A) the velocity of money is highly variable.
B) the money supply directly affects real GDP.
C) the money supply inversely affects velocity.
D) real GDP increases as the price level increases.
E) P = MV/Q.

Question

Quizplus · Accepted Answer

The quantity theory of money is expressed by the equation P = MV/Q, where P is the price level, M is the money supply, V is the velocity of money, and Q is the quantity of goods and services produced. It states that changes in the money supply will directly impact the price level and vice versa. The velocity of money is assumed to be relatively constant in the short run, and changes in real GDP are caused by changes in Q.

According to the Quantity Theory of Money