Question

which of the following ideas is the quantity theory of money used to demonstrate? choose 1 answer: a inflation occurs because the money supply increases faster than real output increases b deflation occurs when the money supply increases faster than real output increases c changes in the velocity of money affect real variables d real output never changes e real variables can be influenced by monetary policy in the long run

Explanation:

The quantity - theory of money, often expressed as $MV = PY$ (where $M$ is the money supply, $V$ is the velocity of money, $P$ is the price level, and $Y$ is real output), implies that inflation occurs when the money supply grows faster than real output. When $M$ increases at a higher rate than $Y$ and $V$ is relatively stable, $P$ (the price level) must rise, which is inflation.

Answer:

A. Inflation occurs because the money supply increases faster than real output increases