Economic theory suggests that

Question

Quizplus · Accepted Answer

According to the Quantity Theory of Money, a rapid growth in the money supply (assuming other factors are held constant) leads to a proportional increase in the price level. Therefore, option C is the correct choice. Option A is partially correct, but it suggests a causal relationship between the money supply and inflation (without holding other factors constant), whereas the Quantity Theory of Money explains that the relationship is proportional, not causal. Option B is incorrect because it suggests that a higher price level causes higher inflation, which is not necessarily true according to economic theory. Options D and E are incorrect because they are extreme statements and do not reflect the nuanced relationship between money supply and the inflation rate.

Economic Theory Suggests That