The quantity theory of money predicts that the price level:
A) increases with the quantity of money in the economy.
B) decreases with the quantity of money in the economy.
C) is relatively constant.
D) is difficult to predict.

Question

Quizplus · Accepted Answer

The quantity theory of money states that the price level is directly proportionate to the quantity of money in the economy. As the amount of money in circulation increases, prices will rise, and as the amount of money in circulation decreases, prices will fall. Therefore, the correct answer is A, increases with the quantity of money in the economy.

The Quantity Theory of Money Predicts That the Price Level