An important reason that the quantity theory of money is less popular today is t
ID: 1197124 • Letter: A
Question
An important reason that the quantity theory of money is less popular today is that:
Question 31
money growth and inflation are no longer closely related.
the quantity of money is better at predicting stock prices.
the economy recently experienced an unexpected and deep recession.
the federal funds market has been taken over by the Federal Reserve bank.
money growth and inflation are no longer closely related.
the quantity of money is better at predicting stock prices.
the economy recently experienced an unexpected and deep recession.
the federal funds market has been taken over by the Federal Reserve bank.
Explanation / Answer
The price level does not depend on the quantity of money in circulation as such. It is influenced by income which the consumers spend in the market. The modern economists are, therefore, of the view that the value of money, in fact, is consequence of the total incomes rather than that of the quantity of money.
Thus the correct answer is (a) money growth and inflation are no longer closely related.
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