The quantity theory of money implies that the growth rate of ________.
A) money demand is equal to the growth rate of money supply
B) money supply is equal to the growth rate of nominal GDP
C) money supply is equal to the growth rate of real GDP
D) currency in circulation is equal to the growth rate of the price level

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the growth rate of money supply is directly proportional to the growth rate of nominal GDP. This is represented by the equation: MV=PQ, where M is money supply, V is velocity of money, P is price level, and Q is real output or real GDP. Therefore, option B is the correct choice.

The Quantity Theory of Money Implies That the Growth Rate