A reason why the quantity theory of money is problematic is that:
A)money supply increases generally affect only goods prices.
B)the Fed generally runs expansionary monetary policy.
C)the velocity of money has fluctuated over time.
D)real output rises during expansions and falls during contractions.

Question

Quizplus · Accepted Answer

The quantity theory of money assumes that the velocity of money is constant. However, the velocity of money has fluctuated over time, which challenges the theory's assumptions and its predictions about the relationship between money supply changes and price level changes.

A Reason Why the Quantity Theory of Money Is Problematic