An assumption of the quantity theory of money is that real GDP growth:
A) remains relatively constant.
B) rises with increases in the money supply.
C) rises with increases in the velocity of money.
D) rises with increases in the price level.

Question

Quizplus · Accepted Answer

The quantity theory of money assumes that real GDP growth remains relatively constant, which means that changes in the money supply result in proportional changes in the price level. This assumption is based on the idea that the economy has a fixed level of resources and technology, so increasing the money supply will not increase the amount of goods and services that can be produced in the long run.

An Assumption of the Quantity Theory of Money Is That