The primary difference between the simple quantity theory of money and one in which interest rates matter is that with the more general model:

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The question asks us to compare the simple quantity theory of money with a more general model that incorporates interest rates, and to identify the primary difference between them.
Option 1: 'there are jumps in exchange rates.' This claim attributes a specific behavior to exchange rates that is not the central distinguishing feature of introducing interest rates into the model. Jumps in exchange rates can occur for many reasons, but the hallmark of adding interest rate channels is not necessarily about abrupt exchange-rate movements.
Option 2: 'monetary policy autonomy is maintained.' In the simple quantity theory, money is the primary driver of nominal variables and the model often implies a loose connection to monetary autonomy due to the rigid quantity rule. When interest rates are included in a more general framework, the central bank gains the ability to influence inflation and output through policy rates, thereby restoring or highlighting monetary policy autonomy. This captures the key difference in how policy can operate beyond a strict quantity-of-money linkage.
Option 3: 'there are no effects of inflation.' This is clearly false in both frameworks; inflation is a central concern in money theory, and introducing interest rates does not eliminate inflation effects. In fact, the whole discussion about policy rates relates to inflation dynamics.
Option 4: 'exchange rates are held constant.' This is not a necessary implication of adding interest rates to the model. Exchange rates can vary depending on monetary policy, capital flows, and other factors; fixing them is not the defining contrast between the theories.
Taken together, the most coherent distinction brought by incorporating interest rates into the model is the reintroduction or maintenance of monetary policy autonomy, allowing policy to influence real and nominal outcomes beyond the pure money supply rule.

01:220:300:01 INTERNATIONAL ECON General long-run FX model practice questions (not for credit)

The primary difference between the simple quantity theory of money and one in which interest rates matter is that with the more general model:

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