Question

A reason that the quantity theory of money has lost favor is that:

a. money growth and inflation are no longer closely related.
b. the quantity of money is better at predicting stock prices.
c. the economy recently experienced an unexpected and deep recession.
d. the federal funds market has been taken over by the Federal Reserve bank.

Answer 1

A is the correct option.

Step-by-step explanation:

The Quantity theory of money was given by Milton Friedman. The theory states that the general price of services and goods are directly proportional to the amount of money supply. The quantity theory was critiqued by Keynesian economics. The critics argued that money velocity is not stable. In the short run, the prices of goods and services are sticky. and hence the relationship between the price level and money supply does not hold. The changes in the supply of money have no role in the inflation rate in the macroeconomic theory.