According to the quantity theory of money,the major cause of inflation in the long run is an increase in:
A) the standard of living.
B) the velocity of money.
C) the growth rate of real GDP.
D) the growth rate of the money supply.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the long-run cause of inflation is an increase in the money supply. This theory holds that the price level is directly proportional to the money supply, meaning that an increase in the money supply will lead to an increase in the price level. This is because, in the long run, the quantity of goods and services available in the economy is determined by the economy's productive capacity, which is represented by real GDP. Therefore, an increase in the money supply relative to the economy's productive capacity will result in more money chasing the same amount of goods and services, driving prices up.

According to the Quantity Theory of Money,the Major Cause of Inflation