The classical theory of inflation illustrates the relationship between which elements? I. The money supply
II) Spending
III) Savings
IV) Output
V, Investment
VI) The overall price level
A) I, IV, and VI
B) II, III, and VI
C) I, IV, and V
D) II, III, and V

Question

Quizplus · Accepted Answer

The classical theory of inflation explores the relationship between the money supply (I), output (IV), and the overall price level (VI). The theory suggests that an increase in the money supply will lead to higher prices (inflation). This occurs as the increased money supply allows for more spending, which drives up demand for goods and services. This, in turn, should result in increased output levels (as producers will respond to the higher demand) but no overall increase in real economic growth. The relationship between spending (II), savings (III), and investment (V) are not directly explored in the classical theory of inflation.

The Classical Theory of Inflation Illustrates the Relationship Between Which