what is the quantity theory of money 
the quantity theory of money states that money supply and price level are directly proportional to each other when there is a change in the price level there is a proportional change in the money supply and vice versa the bottom linethe equation of exchange is a mathematical representation of the quantity theory of money stating that the value of money exchanged in a society equals the value of goods and services exchanged in the same society it shows that inflation is proportional to money supply changes and that the demand for money has two components demand for use in transactions and demand for a hold of liquidity 