If the money supply growth rate permanently increased from 5 percent to 30 percent, which of the following would we expect to happen to inflation?

Question

Quizplus · Accepted Answer

The quantity theory of money suggests that a permanent increase in the money supply growth rate will lead to a proportional increase in the inflation rate. In this case, the money supply growth rate increases from 5 percent to 30 percent, which is a 25 percentage point increase. Therefore, we would expect inflation to increase by 25 percentage points.

If the Money Supply Growth Rate Permanently Increased from 5