On the average in Canada, the inflation rate and the money growth rate minus real GDP growth rate
A)are always rising.
B)are not related.
C)move in opposite directions.
D)are always equal.
E)rise and fall together.

Question

Quizplus · Accepted Answer

In general, the inflation rate in an economy tends to move in tandem with the difference between the money growth rate and real GDP growth rate. This relationship is based on the quantity theory of money, which posits that if the amount of money in an economy grows at a faster rate than real output (GDP), inflation will tend to rise, as there is more money chasing the same amount of goods and services. Conversely, if money supply growth is less than GDP growth, inflation tends to be lower. Therefore, the inflation rate and the money growth rate minus real GDP growth rate typically rise and fall together.

On the Average in Canada, the Inflation Rate and the Money