Evidence shows that the quantity equation is correct over the long run, which implies that the growth rate of the velocity of money causes the level of prices to change. growth rate of GDP causes most of the change in the money supply. growth rate of the money supply determines the rate of inflation. growth rate of inflation leads to growth in GDP.
AnswerThe answer is option c- growth rate of the money supply determines the rate of inflation.
The quantity theory of money holds that price changes are related to changes in the money supply. It is a central cornerstone of monetarism’s economic philosophy and is most widely expressed and taught using the equation of exchange.