According to the quantity theory of money, inflation results whenever the growth rate of the money supply exceeds the growth rate of nominal GDP.

Question

Quizplus · Accepted Answer

This is the essence of the quantity theory of money, which states that the general price level is proportional to the quantity of money in circulation. When the money supply grows faster than the output of goods and services (measured by nominal GDP), there is more money chasing the same amount of goods, leading to higher prices and inflation.

According to the Quantity Theory of Money, Inflation Results Whenever