Assume that the inflation rate in an economy is measured on the y-axis on a graph,and the annualized growth rate of money supply minus the annualized growth rate of real GDP is measured on the x-axis.If a curve is plotted to establish the relationship between both variables,the curve is likely to be ________.
A) vertical
B) horizontal
C) upward-sloping
D) downward-sloping

Question

Quizplus · Accepted Answer

The relationship between inflation and the growth rate of money supply minus the growth rate of real GDP is represented by the Quantity Theory of Money, which suggests a direct relationship. As the difference (money supply growth minus real GDP growth) increases, inflation is likely to increase, indicating an upward-sloping curve.

Assume That the Inflation Rate in an Economy Is Measured