Quantity Theory of Money

Definition

The Quantity Theory of Money states that the general price level in an economy is directly proportional to the amount of money in circulation. In simpler terms, when there is more money circulating in the economy, prices tend to rise.

Related terms

Inflation: The general increase in prices over time due to a decrease in the value of money.

Money Supply: The total amount of money available within an economy at a given time.

Aggregate Demand: The total demand for goods and services within an economy at different price levels.