According to the quantity theory of money, changes in the price level are the result of changes in the
A) real interest rate.
B) prime interest rate.
C) quantity of money.
D) velocity of circulation.

Question

Quizplus · Accepted Answer

The quantity theory of money states that changes in the price level are directly proportional to changes in the quantity of money in circulation. In other words, an increase in the supply of money will lead to an increase in prices, and a decrease in the supply of money will lead to a decrease in prices. This relationship can be expressed mathematically as follows: MV = PT, where M is the money supply, V is the velocity of circulation, P is the price level, and T is the number of transactions.

According to the Quantity Theory of Money, Changes in the Price