Final answer:
Long-run data support the Quantity Theory of Inflation, assumes constant velocity (though this has been disproven), and is used by economists to explain long-run money growth and inflation rates; hence, all options are correct. Option d. all of the above are correct is the correct answer.
Step-by-step explanation:
The question pertains to the Quantity Theory of Inflation, which posits a relationship between money supply growth and inflation. According to this theory, as the velocity of money (the rate at which money changes hands) began to fluctuate in the 1980s, central banks shifted their focus from targeting money supply growth rates to adjusting monetary policy in response to actual or potential inflation and unemployment. The reasons for this shift were that a constant money supply growth coupled with a volatile velocity could lead to unpredictable changes in nominal GDP, creating economic instability.
Given this context, let's evaluate the options provided:
- Long-run data supports the Quantity Theory of Inflation.
- The theory assumes a constant velocity, which proved to be a flawed assumption in the 1980s when velocity was not stable.
- Modern economists generally use this theory to explain the long-run relationship between money supply growth and inflation rate.
Therefore, the correct answer is d. all of the above are correct.