The quantity theory of money assumes a constant ratio of ________.
A) real GDP to nominal GDP
B) money supply to nominal GDP
C) money supply to real GDP
D) money demand to money supply

Question

Quizplus · Accepted Answer

The quantity theory of money assumes a constant ratio of money supply to nominal GDP, which is represented by the equation M*V=P*Y, where M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP. The assumption is that changes in the money supply will have a proportional effect on the price level.

The Quantity Theory of Money Assumes a Constant Ratio of ________