The quantity theory of money tells us that real money balances are proportional to income,since ________.
A)velocity is assumed constant in the short run
B)the supply and demand of money are equal in equilibrium
C)changes in the quantity of money lead to proportional changes in the price level
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that real money balances are proportional to income because it assumes velocity is constant in the short run, posits that the supply and demand of money are equal in equilibrium, and states that changes in the quantity of money lead to proportional changes in the price level. All these factors contribute to the relationship between money and income as described by the theory.

The Quantity Theory of Money Tells Us That Real Money