The quantity theory of money is a theory asserting that the quantity of money available determines the price level and the growth rate in the quantity of money determines the inflation rate.

Question

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The quantity theory of money argues that the supply of money in an economy has a direct relationship with the price level of goods and services. The theory also posits that if the money supply increases at a faster rate than the growth of real output in the economy, this will cause inflation. Therefore, the growth rate in the quantity of money determines the inflation rate.

The Quantity Theory of Money Is a Theory Asserting That