The rate of inflation will vary over the business cycle even if the growth rate of the money supply is constant.

Question

Quizplus · Accepted Answer

This is because the business cycle is characterized by changes in economic activity and demand for goods and services, which can affect prices and inflation levels. During an expansionary phase of the cycle, when there is high demand for goods and services, inflation may increase even with a constant growth rate of the money supply. Conversely, during a contractionary phase, when demand is low, inflation may decrease even with a constant growth rate of the money supply.

The Rate of Inflation Will Vary Over the Business Cycle