The quantity theory of money assumes which of the following is constant?
A) The quantity of money
B) Real GDP
C) The price level
D) The velocity of money
E) Nominal GDP

Question

Quizplus · Accepted Answer

The quantity theory of money assumes that the velocity of money is constant, meaning that the rate at which money moves through the economy to make transactions stays relatively stable. The theory also states that the total amount of money in circulation (represented by M) multiplied by the velocity of money (represented by V) equals the price level (represented by P) multiplied by real GDP (represented by Y); in other words, MV=PY. Therefore, if V is constant, changes in the money supply (M) will lead to proportional changes in the price level (P).

The Quantity Theory of Money Assumes Which of the Following