The quantity theory of money assumes that the demand for real money balances:
A)depends on both the interest rate and income.
B)depends only on the interest rate.
C)is proportional to income.
D)is proportional to the interest rate.

Question

Quizplus · Accepted Answer

The quantity theory of money, particularly in its classical form, assumes that the demand for real money balances is proportional to income, as represented by the equation MV = PY, where V (velocity) is constant.

The Quantity Theory of Money Assumes That the Demand for Real