Which of the following statements is NOT correct in the context of the quantity theory of money?
Tap an option to check your answer.
2 marks, −0.667MacroeconomicsDemand for money and monetary theoriesThe quantity theory of money and velocityModerateabout 1 min
IIT JAM 2022 Question 18: Demand for money and monetary theories
Answer and worked solution
Answer: (C)
In the quantity theory (MV = PY) velocity V and real output Y are taken as given, so the money stock determines the price level and money growth determines inflation, while money is neutral for real output.
The claim that velocity must rise with the money stock contradicts the constant-velocity assumption, so (C) is NOT correct.
The trap: (A) The quantity of money available determines the price level in the economy.
Statements (A), (B) and (D) are direct implications of the quantity equation; only the velocity claim violates the theory's own constant-velocity premise.
Demand for money and monetary theories has come up 82 times in 7 exams since 2005.
What this question tests
This question is on The quantity theory of money and velocity, part of Demand for money and monetary theories in Macroeconomics.
The link between the money stock, prices and output through velocity.
TestStop has 30 past-paper questions on this subtopic.
Question from the IIT JAM 2022 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.