In 2008 and 2009, the quantity theory of money did a_{--------------------} job of predicting year-to-year changes in the inflation rate because_{--------------------} . A)poor; velocity of circulation plunged B)good; interest rates behaved predictably C)good; real GDP remained stable D)poor; the Fed changed the growth rate of the quantity of money too quickly E)poor; the price level and the velocity of circulation did not change

Question

Quizplus · Accepted Answer

The quantity theory of money did a poor job of predicting inflation in 2008 and 2009 because the velocity of circulation, which is assumed to be stable in the theory, plunged during the financial crisis.

In 2008 and 2009, the Quantity Theory of Money Did