Quantity Theory of Money Flashcards
1
Q
What is the equation for the quantity theory of money?
A
MV = PQ
2
Q
M
A
Money supply
3
Q
V
A
Velocity of circulation (how fast money changes hands to finance transactions)
4
Q
P
A
Price level
5
Q
Q
A
Quantity of output (Real GDP)
6
Q
Crude Theory assumes that which two variables are constant?
A
V and Q
7
Q
According to Crude Theory, which two variables are directly proportional?
A
M and P
8
Q
What does Sophisticated Theory assume?
A
That no variables are constant
9
Q
When will the increase in M be inflationary? (cause an increase in P)
A
Only when the rate of growth of the money supply exceeds the rate of output in the economy (M greater than Q)
10
Q
When is it most difficult to increase Q?
A
When the economy is near full employment
