Based on the quantity theory of money what is required for price level stability?

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the price level is directly proportional to the money supply and the velocity of money, and inversely proportional to real GDP. Therefore, for price level stability, the money supply needs to grow at the same rate as real GDP. If the money supply grows more quickly, it will lead to inflation, and if it grows more slowly, it will lead to deflation. Similarly, if the velocity of money increases more quickly than the money supply, it will also lead to inflation. Therefore, option B is the correct choice.

Based on the Quantity Theory of Money What Is Required