The quantity theory of money assumes that the velocity of money:
A) is constant.
B) will rise if the money supply rises and fall if the money supply falls.
C) will rise if the money supply rises, but it will not change if the money supply falls.
D) will fall if the money supply rises, and it will rise if the money supply falls.
E) will fall if the money supply rises, but it will not change if the money supply falls.

Question

Quizplus · Accepted Answer

The quantity theory of money assumes that the velocity of money is constant. This means that the number of times a unit of currency is used to purchase goods and services within a given time period remains unchanged in the short run. Therefore, changes in the money supply will have a proportional impact on the price level in the economy.

The Quantity Theory of Money Assumes That the Velocity of Money