Which of the following statements best describes the historical relationship between increases in the money supply (M1)and inflation in the U.S.?
A)All three major episodes of inflation since 1914 were preceded and accompanied by an increase in the growth rate of M1.
B)There is no strong evidence of any relationship between inflation and increases in the money supply in the 20th century.
C)Since the formation of the Fed in 1914,there have been no significant periods of inflation
D)In all three major episodes of inflation since 1914,increases in the growth rate of M1 occurred after the inflation subsided.
E)There were significant periods of inflation during each decade of the 20th century and each was preceded and accompanied by an increase in the growth rate of M1.

Question

Quizplus · Accepted Answer

The statement that best describes the historical relationship between increases in the money supply (M1) and inflation in the U.S. is that all three major episodes of inflation since 1914 were preceded and accompanied by an increase in the growth rate of M1. This suggests that there is a positive relationship between the two variables, as an increase in the money supply can lead to an increase in aggregate demand, which can then lead to higher prices and inflation. However, it is important to note that other factors can also influence inflation, such as changes in productivity, technology, and government policies.

Which of the Following Statements Best Describes the Historical Relationship