In the long run, inflation is caused by
A) global warning.
B) greedy monopolists.
C) the tradeoff between aggregate output and inflation.
D) aggressive labour unions.
E) growth in the money supply.

Question

Quizplus · Accepted Answer

Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. The most fundamental cause of inflation is an increase in the money supply that is not backed by an increase in the supply of goods and services. As the money supply increases, consumers have more money to spend, but if the supply of goods and services does not increase at the same rate, then prices will rise. Therefore, growth in the money supply is the most significant long-term cause of inflation.

In the Long Run, Inflation Is Caused by