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which since y/V is a constant implies that changes in the stock of money are proportional to changes in the price level. This relationship is the core of the quantity theory of money.

Several important policy recommendations result from this simple theory. It suggests that inflation can be controlled by the monetary authorities monetary policy) through control of the quantity of money in existence. Alternatively, if a certain rate of growth in real income is anticipated, then this can be achieved without inflation by allowing the quantity of money in the economy to increase at the same rate but no faster.


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