The quantity theory of money assumes that real GDP:
A) increases with the quantity of money in the economy.
B) decreases with the quantity of money in the economy.
C) is relatively stable.
D) is difficult to predict.

Question

Quizplus · Accepted Answer

The quantity theory of money assumes that the velocity of money is relatively stable and real GDP is determined by factors such as technology, labor, and capital. Therefore, changes in the quantity of money should primarily affect prices rather than real GDP.

The Quantity Theory of Money Assumes That Real GDP