The quantity theory of money:
A)does not explain inflation in the real world at all.
B)explains low inflation rates well but does not explain high inflation rates well.
C)explains high inflation rates well but does not explain low inflation rates well.
D)provides a comprehensive explanation of inflation.

Question

Quizplus · Accepted Answer

The quantity theory of money is more effective at explaining high inflation rates, particularly in scenarios where the money supply increases rapidly. It suggests that when the amount of money in an economy grows faster than its output, inflation will occur. This theory is less effective at explaining low inflation rates, as other factors (such as demand, productivity, and technological advancements) can play significant roles in influencing inflation when it is low.

The Quantity Theory of Money