The quantity theory of money of the Classical economists says that a change in the money supply will produce a:
A) proportional change in the price level.
B) greater than proportional change in the price level.
C) less than proportional change in the price level.
D) wide variation in the velocity of money.

Question

Quizplus · Accepted Answer

The quantity theory of money posits that changes in the money supply will lead to proportional changes in the price level, assuming velocity of money and real output are constant. This is encapsulated 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 quantity of goods and services produced.

The Quantity Theory of Money of the Classical Economists Says