A study of countries with high inflation rates indicates that the inflation is generally
A) caused by strong labor unions.
B) the result of restrictive macroeconomic policy, which pushes up interest rates.
C) caused by supply shocks.
D) the result of rapid growth in the money supply.

Question

Quizplus · Accepted Answer

High inflation rates are often caused by a rapid increase in the money supply, which leads to an excess supply of money chasing a limited supply of goods and services, driving up prices. Supply shocks or strong labor unions may also contribute to inflation, but they are not typically the main underlying cause. Restrictive macroeconomic policy, which can raise interest rates, is actually a tool used to combat inflation, not a cause of it.

A Study of Countries with High Inflation Rates Indicates That