what are the limitations of the quantity theory of money 
while the quantity theory of money can provide some useful generalizations about the role of money in an economy it also relies on some assumptions that have been criticized by economists one of the biggest is the assumption that the velocity of money is constant and that other factors will remain fixed as the supply of money increases in a real world economy each of these variables is likely to fluctuate due to changes in consumer behavior and interest rates moreover the theory may be ineffective at predicting outcomes in situations with interests rates at or near zero a situation known as a liquidity trap the bottom linethe quantity theory of money is an economic formula that describes the relationship between money and prices it demonstrates how an increase in the money supply can cause an increase in price levels assuming that the velocity of money and volume of transactions remain fixed although it is foundational to the theory of monetarism there are competing theories from other schools of economics 