An assumption used in the quantity theory of money is that

Question

Quizplus · Accepted Answer

The quantity theory of money assumes that velocity (the speed at which money circulates in the economy) is constant, which allows for a direct relationship between the money supply and nominal GDP. However, in reality, velocity is not constant and can fluctuate due to changes in consumer and business behavior. Therefore, the assumption of constant velocity is a limitation of the quantity theory of money. The other choices (A, C, and D) are incorrect because the theory does not assume a constant price level, nominal income, or money supply. Rather, it posits that changes in the money supply will lead to proportionate changes in the price level and nominal income.

An Assumption Used in the Quantity Theory of Money Is