Question

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also a. either a rise in output or a rise in the rate at which money changes hands. b. either a rise in output or a fall in the rate at which money changes hands. c. either a fall in output or a rise in the rate at which money changes hands. d. either a fall in output or a fall in the rate at which money changes hands.

Answer 1

Answer:

The correct answer is b. either a rise in output or a fall in the rate at which money changes hands.

Explanation:

The quantitative theory of money is an economic theory that aims to explain the causes of inflation, that is, the variations in prices and the value of money in a country.

To explain inflation, the quantitative theory of money relates the money supply to the general price level. The money supply is the amount of money that exists in the economy. It can be estimated since it is the central banks that control the liquidity of the economy.