The primary difference between the simple quantity theory of money and one in which interest rates matter is that with the more general model, there are jumps in exchange rates.
The quantity theory of money states that when money in an economy twice, prices will also double, all other things being equal. This implies that for the same amount of products and services, the consumer will spend twice as much.
Inflation, a measurement of the rate of rising prices of goods and services in an economy, will eventually rise as a result of this rise in price levels.
Money's supply and demand are influenced by the same factors that affect the supply and demand of other commodities: a rise in money supply lowers the marginal value of money. Monetarists contend that a sharp rise in the money supply can result in a sharp rise in inflation.
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