The quantity theory of money concludes that if real output is constant:
A)changes in the price level are caused by changes in the money supply.
B)real GDP and the money supply are related in the long run.
C)changes in velocity are proportional to changes in nominal income.
D)changes in velocity are proportional to changes in the money supply.

Question

Quizplus · Accepted Answer

The quantity theory of money, particularly when assuming a constant velocity of money and constant real output, posits that changes in the price level are directly attributable to changes in the money supply. This relationship is encapsulated in the equation of exchange: MV = PQ, where M is the money supply, V is the velocity of money (assumed constant here), P is the price level, and Q is the quantity of goods and services produced (real output, assumed constant here). Thus, any change in the money supply (M) directly affects the price level (P), assuming V and Q are constant.

The Quantity Theory of Money Concludes That If Real Output