The quantity theory of money ________.
A) assumes that the ratio of money supply to nominal GDP increases over time
B) assumes that the ratio of money supply to nominal GDP decreases over time
C) is an exact representation of how the economy behaves in the long run
D) is a representation of how a change in the money supply affects the price level in an economy

Question

Quizplus · Accepted Answer

The quantity theory of money is the idea that the amount of money in circulation in an economy is directly proportional to the price level of goods and services sold in that economy. Therefore, it assumes that a change in the money supply of an economy will affect the price level. It does not make any assumptions about the ratio of money supply to nominal GDP over time, nor is it an exact representation of how the economy behaves in the long run.

The Quantity Theory of Money ________