If the money supply is currently $100 million and the government prints another $300 million to finance the budget deficit, then we should expect:
A) a 200 percent inflation rate.
B) a 3 percent inflation rate.
C) a 200 million percent inflation rate
D) a 300 percent inflation rate.

Question

Quizplus · Accepted Answer

The increase in money supply is 300 million out of 100 million, which is a 300% increase in money supply. This will cause inflation, but the rate of inflation cannot be determined solely from this information. Other factors such as the velocity of money and the strength of the economy will also play a role in determining the inflation rate.

If the Money Supply Is Currently $100 Million and the Government