Data confirm that the quantity theory of money ________.
A) holds in the long run
B) holds only in the short run
C) holds both in the long run and the short run
D) does not hold in either the short run or the long run

Question

Quizplus · Accepted Answer

The quantity theory of money is a long-run theory that predicts a direct relationship between the money supply and the price level. In other words, over the long run, an increase in the money supply will lead to a proportional increase in the price level. This relationship has been supported by empirical evidence in the long run. However, in the short run, there may be other factors that affect the price level, such as changes in real output or shifts in demand and supply. Therefore, while the quantity theory of money holds in the long run, it may not hold in the short run.

Data Confirm That the Quantity Theory of Money ________