header bg

Scan QR code or get instant email to install app


The quantity theory of money states that in a full employment economy, any increase in the supply of money in excess of the rate of growth of real GDP will lead to a proportional increase in:

A the price level.

The quantity theory of money hypothesizes that a change in the money supply, at full employment, will cause a proportional change in the price level because velocity and real output will be unaffected. According to the equation of exchange, MV = PY, output of goods and services produced, V, at full employment cannot change, so the price level, P, must increase.

Related Information


Leave a Reply

Your email address will not be published. Required fields are marked *