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The Quantity Theory of Money

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The Quantity Equation - Growth Rates Form
The Quantity Theory of Money
The quantity equation can also be written in growth rates form, as shown above. Not surprisingly, the growth rates form of the quantity equation relates changes in the amount of money available in an economy and changes in the velocity of money to changes in the price level and changes in output.

This equation follows directly from the levels form of the quantity equation using some basic math. If two quantities are always equal, as in the levels form of the equation, then the growth rates of the quantities must be equal. In addition, the percentage growth rate of the product of two quantities is equal to the sum of the percentage growth rates of the individual quantities.

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