According to the quantity theory of money, persistent inflation can only be caused by:
A)a low rate of unemployment.
B)money supply growth that exceeds real GDP growth.
C)a high rate of unemployment.
D)a continually-growing government deficit.

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that inflation is the result of the money supply growing at a faster rate than real GDP. When the amount of money in an economy increases more rapidly than the economy's ability to produce goods and services, prices rise, leading to inflation.

According to the Quantity Theory of Money, Persistent Inflation Can