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

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. Therefore, an increase in the quantity of money will result in an increase in the price level, while a decrease in the quantity of money will result in a decrease in the price level. Changes in the velocity of circulation, real interest rate or prime interest rate can affect the economy but do not directly influence the price level according to the quantity theory of money.

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