The long-run link between money growth and the inflation rate is not precise since
A)variations in output do not affect real money demand
B)interest rate changes don't affect the cost of holding real money balances or the desired ratio of income to money
C)money demand tends to shift over time as a result of financial innovation
D)the income velocity of money has steadily declined over the last three decades
E)all of the above

Question

Quizplus · Accepted Answer

Money demand tends to shift over time as a result of financial innovation. This means that the relationship between money growth and inflation may change over time as the demand for money is not constant. The other options are either incorrect or do not fully explain the imprecise relationship between money growth and inflation.

The Long-Run Link Between Money Growth and the Inflation Rate