CAIE A-Level Economics 9.4.3 Quantity theory of money

CAIE A-Level Economics 9.4.3 Quantity theory of money
Cambridge International AS & A Level Economics 9708 syllabus for exams in 2026, 2027 and 20282026–2028

Practise applying MV=PT to price-level questions, velocity changes and monetarist arguments about inflation and money growth.

How this is tested

  • use MV=PT tables to predict whether the general price level rises, falls or stays unchanged
  • explain how changes in velocity or transactions offset money-supply growth
  • link monetarist assumptions to inflation under full employment or stable velocity

Question 14

[Maximum number: 1]

Which statement about the quantity theory of money is correct?

A

It suggests changes in liquidity preference lead to proportional changes in the price level.

B

It suggests changes in the money supply lead to proportional changes in the price level.

C

It suggests changes in the price level lead to proportional changes in liquidity preference.

D

It suggests changes in the price level lead to proportional changes in the money supply.