The quantity theory of money is a proposition about
A) the Fed's methods used to change the quantity of money.
B) nominal and real interest rates.
C) the relationship between a change in the quantity of money and the price level.
D) the relationship between financial assets and currency demanded.
E) the nominal interest rate and the quantity of money demanded.

Question

Quizplus · Accepted Answer

The quantity theory of money is based on the equation MV = PQ, where M is the quantity of money, V is its velocity of circulation, P is the price level, and Q is the quantity of output. This theory states that a change in the quantity of money will lead to a proportional change in the price level, assuming velocity and output are constant. Therefore, it is a proposition about the relationship between a change in the quantity of money and the price level.

The Quantity Theory of Money Is a Proposition About