The quantity theory of money is the idea that in the long run
A) the quantity of money determines real GDP.
B) the quantity of money is determined by banks.
C) an increase in the growth rate of the quantity of money leads to an equal increase in the inflation rate.
D) the quantity of money serves as a good indicator of how well money functions as a store of value.

Question

Quizplus · Accepted Answer

The quantity theory of money states that in the long run, an increase in the growth rate of the quantity of money leads to an equal increase in the inflation rate. This is because as the quantity of money in circulation increases, there are more dollars available to purchase the same amount of goods and services, leading to higher prices (inflation). Therefore, choice C is the correct answer. Choices A, B, and D do not accurately reflect the quantity theory of money.

The Quantity Theory of Money Is the Idea That in the Long