The quantity theory of money is an economic principle stating that the total amount of money in an economy is directly related to the general price level of goods and services.

It is commonly represented by the equation MV = PY:

• M: Money supply
• V: Velocity of circulation (how fast money changes hands)
• P: Price level
• Y: Real output (total production)

The theory suggests that because velocity and output usually remain stable, increasing the money supply will primarily lead to an increase in prices, often causing inflation.