Changes in the money stock are the cause of change, not the effect. Secondly, changes in velocity of circulation are possible due to factors such as changes in transportation, new financial institutions, or other external factors. Thirdly, the quantity theory assumes that the value of velocity is not dependent on either the amount of money or on the price level. Later we will see that interest rates drive the velocity of money. Unlike labor or machines, money is not a resource that results in the production of output.
Money is just an intermediary.
Hence, additional money does not act as an input that increases output. According to the theory, total spending is made up of two parts, a price part and a quantity part. From this formula, and the quantity theory, we can derive the following. If the amount of money doubles, the price level will also double. Conversely, if the amount of money is cut in half, the price level will be one half its former value.