According to the quantity theory of money,the inflation rate equals

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Quizplus · Accepted Answer

According to the quantity theory of money, the general price level is directly proportional to the money supply and the velocity of money (the rate at which money changes hands). Algebraically, this relationship can be expressed as M x V = P x Y, where M is the money supply, V is velocity, P is the price level, and Y is real output. Rearranging the equation, we get P = M x V / Y. The inflation rate, which is the percentage change in the price level over time, can be approximated by the percentage change in the money supply minus the percentage change in real output, which is expressed as (M2 - M1) / M1 - (Y2 - Y1) / Y1. This simplifies to (M2 / Y2) - (M1 / Y1), which is equal to the growth rate of the money supply minus the growth rate of real output. Therefore, option B is the correct answer.

According to the Quantity Theory of Money,the Inflation Rate Equals