In economies with persistently high inflation, an increase in the money supply will:
A) translate into a proportional increase in the aggregate price level much faster than usual.
B) translate into a proportional increase in the aggregate price level only in the long run.
C) not affect either the aggregate price level or the aggregate output.
D) translate into a proportional increase in the aggregate output much faster than usual.

Question

Quizplus · Accepted Answer

In economies with persistently high inflation, consumers and firms may begin to anticipate future price increases and adjust their behavior accordingly. This can lead to a much faster translation of an increase in the money supply into an increase in the aggregate price level. This is known as the "velocity of money," and in high inflation economies, velocity tends to be much higher than in low inflation economies. Therefore, option A is the correct answer.

In Economies with Persistently High Inflation, an Increase in the Money