The quantity theory of money states that
A) as the price level increases, the demand for money increases.
B) changes in the quantity of money are determined by the commercial banks and not the Federal Reserve.
C) inflation increases when the money growth rate increases.
D) as the interest rate rises, the demand for money decreases.

Question

Quizplus · Accepted Answer

The quantity theory of money states that inflation increases when the money growth rate increases. Choices A and D describe the demand for money, which is not directly related to the quantity theory of money. Choice B is incorrect because the Federal Reserve is responsible for monetary policy and controlling the money supply in the economy.

The Quantity Theory of Money States That