The Quantity Theory of Money Implies That If Output and Velocity

question 24

True/False

The quantity theory of money implies that if output and velocity are constant, then a 50 percent increase in the money supply would lead to less than a 50 percent increase in the price level.

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Definitions:

Federal Funds Rate

The interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight.

Inflation Rate

The percentage change in the price level of goods and services in an economy over a given period of time.

Prime Interest Rate

The interest rate that commercial banks charge their most creditworthy customers, often used as a benchmark in lending rates.

Equation of Exchange

An economic formula representing the relationship between the supply of money in an economy and the level of prices of goods and services, expressed as M*V = P*T.