It is often said that inflation is a "monetary phenomenon." The most accurate interpretation of this phrase is that

Question

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This phrase means that inflation can only occur if there is a continuous increase in the money supply. This is because an increase in the money supply leads to an increase in aggregate demand, which results in higher prices. However, supply shocks (such as natural disasters or disruptions in the supply chain) can also drive up prices temporarily, but without continuing increases in the money supply, a continuous rise in prices is not possible. Therefore, the most accurate interpretation of the phrase is that inflation is a "monetary phenomenon" because it is primarily driven by changes in the money supply.

It Is Often Said That Inflation Is a "Monetary Phenomenon