Economists who believe in the quantity theory of money argue that:
A)the causation in the equation of exchange goes from PQ to MV.
B)the causation in the equation of exchange goes from MV to PQ.
C)the causation in the equation of exchange could go either way.
D)there is no causation in the equation of exchange.

Question

Quizplus · Accepted Answer

Economists who support the quantity theory of money argue that the causation in the equation of exchange (MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the output of goods and services) goes from the money supply and its velocity (MV) to the price level and output (PQ). This suggests that changes in the money supply directly influence inflation and economic output.

Economists Who Believe in the Quantity Theory of Money Argue