A Key Problem with the Basic Quantity Theory of Money

question 43

Multiple Choice

A key problem with the basic quantity theory of money is that it

• A)did not apply to money in its role as a medium of exchange.
• B)failed to explain completely actual changes in real money balances.
• C)assumed that prices did not change.
• D)assumed that the stock of money did not change.

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Definitions:

Total Debits

The sum of all debit entries in an account, which can represent increases in assets or expenses, and decreases in liabilities, equity, and income.

Total Credits

The sum of all credit entries in an accounting system, representing the total amount by which liabilities, equity, and revenue accounts increase.

Trial Balance

An accounting report that lists the balances of all ledgers accounts in order to ensure that total debits equal total credits.

Financial Transaction

A financial transaction refers to an agreement, or communication between a buyer and seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals.