Question

State the quantity theory of money. If the velocity of circulation was not fixed in the long run, would the quantity theory of money still hold ?

Answer 1

The quantity theory of money states that price levels are directly proportional to the amount of money in circulation, i.e. the quantity of money determines the value of money.
An increase in money supply in the long run would tend to raise the price levels and GDP. and the velocity of circulation is calculated by dividing the GDP by total money supply. Hence, velocity does not remain constant over the long run, and the quantity theory would still hold, but price levels would vary even if the growth rate of money supply is constant.