An economic theory stating that the general price level of goods and services is directly proportional to the amount of money in circulation. Often expressed by the equation MV = PQ, where M is money supply, V is velocity, P is price level, and Q is real output.
Example
“If a central bank doubles the money supply (M) while velocity (V) and output (Q) remain constant, the Quantity Theory of Money predicts that the price level (P) will also double, resulting in inflation.”