Asked by Maria del Mar Ribas on Jul 12, 2024
Verified
The quantity theory of money assumes that money supply and price level are the only variables in the equation of exchange that are free to fluctuate.
Quantity Theory of Money
A theory that relates the money supply to the price level and the rate of economic growth.
Money Supply
The sum of all financial assets, encompassing cash and deposits in banks, present within an economy at a given moment.
Price Level
An indicator that measures the typical prices for a comprehensive selection of goods and services within the economy.
- Acquire knowledge of the core principles underlying the quantity theory of money and how they influence nominal and real GDP.
Verified Answer
AF
Ajmal FaizyJul 13, 2024
Final Answer :
False
Explanation :
The quantity theory of money, as represented by the equation of exchange (MV = PQ), assumes that the velocity of money (V) and the quantity of goods produced in the economy (Q) are constant or predictable in the short term, allowing changes in the money supply (M) to directly affect the price level (P).
Learning Objectives
- Acquire knowledge of the core principles underlying the quantity theory of money and how they influence nominal and real GDP.