Question

According to the quantity theory of money, the quantity of money is related negatively to the nominal interest rate:

a. negatively to the price level
b. positively to the velocity of money
c. positively to the unemployment rate
d. positively to the nominal gross domestic product

Answer 1

d. positively to the nominal gross domestic product

Step-by-step explanation:

The quantity theory of money :

M = (P x Y ) / V

Where m = quantity of money

P × Y = nominal GDP

V = velocity

Velocity is assumed to be constant in the short run. It is also believed that Y is constant in the short run. Therefore, movement in price level is determined by the quantity of money.

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