When using the quantity theory of money to analyze the relation between inflation, money, real output, and prices, we typically assume:
A) real output and the money supply are constant.
B) real output and the velocity of money are constant.
C) the velocity of money is equal to the inflation rate.
D) the growth rate of the money supply is constant.

Question

Quizplus · Accepted Answer

The quantity theory of money assumes that the velocity of money is constant, meaning how frequently money changes hands in a given period of time, as well as assuming real output (or real GDP) is constant. This allows us to make predictions about how changes in the money supply affect the overall price level.

When Using the Quantity Theory of Money to Analyze the Relation