Key assumptions behind the quantity theory of money include:

Question

Quizplus · Accepted Answer

The quantity theory of money assumes that the velocity of money is constant, meaning the rate at which money changes hands in the economy does not fluctuate significantly. This assumption allows for a direct proportional relationship between changes in the money supply and changes in the price level. The other assumptions listed (fixed money supply, percentage change in price level equals percentage change in real GDP, change in nominal GDP is zero) do not accurately reflect the key assumptions of the quantity theory of money.

Key Assumptions Behind the Quantity Theory of Money Include