The "quantity theory of money" describes the relationship between:
A) prices, employment, money supply, and production.
B) the velocity of money, money supply, real output, and prices.
C) GDP, money supply, consumption, and savings.
D) the money supply and real GDP.

Question

Quizplus · Accepted Answer

The quantity theory of money is based on the idea that the total supply of money in an economy is directly proportional to the level of prices. The theory states that the velocity of money (the rate at which money changes hands) is constant, so an increase in the money supply will lead to a proportional increase in prices. This relationship between the velocity of money, money supply, real output, and prices is described by choice B.

The "Quantity Theory of Money" Describes the Relationship Between