According to the quantity theory of money, the price level decreases in equal proportion to the decrease in the money supply and vice-versa.
In the money economy, the quantity theory of money is one of the directions of Western economic thought that emerged in the 16th and 17th centuries. The century has arrived. QTM states that the general price level of goods and services is directly proportional to the amount of money in circulation, or the money supply.
The quantity theory of money states that the money supply and price level in an economy are directly related to each other. When the money supply changes, the price level changes proportionally, and vice versa.
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