Which of the following is true regarding the quantity theory of money?
I. The theory predicts that in the long run the inflation rate equals the money growth rate minus the growth rate of real GDP.
II. The theory predicts that countries with high growth rates of money will have high inflation rates.
III. The theory predicts that increases in the growth rate of velocity lowers the inflation rate.

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that in the long run, the inflation rate is determined by the money growth rate minus the growth rate of real GDP (I) and that countries with high money growth rates tend to have high inflation rates (II). However, an increase in the growth rate of velocity would typically increase the inflation rate, not lower it, making III incorrect.

Which of the Following Is True Regarding the Quantity Theory