The quantity theory of money assumes that two things grow at the same rate.Which two things?
A) Real GDP and nominal GDP
B) Nominal GDP and prices
C) The money supply and nominal GDP
D) Real GDP and the money supply

Question

Quizplus · Accepted Answer

The quantity theory of money assumes that the money supply and nominal GDP grow at the same rate. This is expressed by the equation MV=PY, where M is the money supply, V is velocity of money, P is the price level, and Y is real GDP. The theory suggests that changes in the money supply will lead to proportional changes in nominal GDP, but will have no effect on real GDP in the long run.

The Quantity Theory of Money Assumes That Two Things Grow