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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 17, Problem 3CQQ
Textbook Problem
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According to the quantity theory of money, which variable in the quantity equation is most stable over long periods of time?

a. money

b. velocity

c. price level

d. output

To determine
The most stable variable according to the quantity theory of money.

Explanation of Solution

Option (b):

The quantity equation relates the quantity of money, velocity of money, and nominal GDP; in many cases, it shows that velocity is relatively stable over a period of time (even if both money supply and nominal GDP show an increase or change during a period). Thus, option ‘b’ is correct.

Option (a):

By quantity equation, the quantity of money changes over a period of time...

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