According to the quantity theory of money, money growth and inflation are
A) positively correlated.
B) negatively correlated.
C) independent, that is, not correlated.
D) positively correlated if the inflation rate is positive and negatively correlated if the inflation rate is negative.

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold. According to this theory, if the amount of money in an economy grows, the price level also grows, leading to inflation. Thus, money growth and inflation are positively correlated.

According to the Quantity Theory of Money, Money Growth and Inflation