(also the quantity theory of money)
The hypothesis that changes in prices correspond to changes in the monetary supply.
- If these two variables were assumed to remain constant, then the simple quantity theory would predict the price level to change in proportion to a change in the money supply.
- The correlation between price level and money supply is determined by the quantity theory of money.
- Traditionally, classical economists supported the quantity theory of money as explaining price levels.
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Syllabification: quan·ti·ty the·o·ry
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