According to the quantity theory of money, which of the following best describes what determines the rate of inflation in the long run?

Choose 1 answer:
(A) The rate of inflation is constant in the long run
(B) The growth of the price level
(C) The rate of growth of the money supply
(D) The growth of real GDP per capita
(E) The rate of change of the velocity of money

Question

According to the quantity theory of money, which of the following best describes what determines the rate of inflation in the long run?

Choose 1 answer:
(A) The rate of inflation is constant in the long run
(B) The growth of the price level
(C) The rate of growth of the money supply
(D) The growth of real GDP per capita
(E) The rate of change of the velocity of money

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ The quantity theory of money is expressed by the equation $ MV = PT $, where $ M $ is the money supply, $ V $ is the velocity of money, $ P $ is the price level, and $ T $ is the volume of transactions. ‖ ‖ step 2 ⋮ In the long run, the velocity of money ($ V $) and the volume of transactions ($ T $), which can be associated with real GDP, are assumed to be constant or to grow at a steady rate. ‖ ‖ step 3 ⋮ According to the theory, if the money supply ($ M $) grows at a rate higher than the growth rate of real GDP ($ T $), there will be inflation, as more money will be chasing the same amount of goods and services. ‖ ‖ step 4 ⋮ Therefore, the rate of growth of the money supply ($ M $) is what determines the rate of inflation in the long run, as long as $ V $ and $ T $ are constant or growing at a steady rate. ‖ ∻Answer∻ ***C*** ∻Key Concept∻ ⚹Quantity Theory of Money⚹ ∻Explanation∻ ⚹The rate of inflation in the long run is determined by the rate of growth of the money supply according to the quantity theory of money, assuming that the velocity of money and real GDP are constant or grow at a steady rate.⚹◊What statistical methods can be used to analyze the relationship between the variables mentioned in the multiple-choice question related to the quantity theory of money?⍭ Generate me a similar question◊

Sia