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    Question

    Which of the following statements is NOT correct in the

    context of quantity theory of money?
    A The quantity of money available determines the price level in the economy Correct Answer Incorrect Answer
    B The growth rate in the quantity of money available determines the inflation rate in the economy Correct Answer Incorrect Answer
    C The velocity of money must rise with the increase in the quantity of money in the economy Correct Answer Incorrect Answer
    D The economy’s output is determined by factor supplies and technology, because money is neutral Correct Answer Incorrect Answer

    Solution

    According to the quantity theory of money, the quantity of money available determines the price level in the economy and the growth rate in the quantity of money available determines the inflation rate in the economy. Moreover, because money is neutral, the economy’s output is determined by factor supplies and technology . However, it is not necessary for the velocity of money to increase with the increase in the quantity of money.

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