1. During the late 1980s, the money supply grew at a ten percent rate while the price level grew at a four percent rate and the quantity of output grew at a three percent rate. Can these results be explained by the quantity theory of money ? If so, how ?

Quantity theory states the following:

GNP = MV = PQ

GNP = GROSS NATIONAL PRODUCT

M = MONEY SUPPLY

V = GNP/M = VELOCITY OR TURNOVER -

some assume V is constant

P = OUTPUT PRICE

Q = QUANTITY OF OUTPUT