The classical theory of inflation illustrates the relationship among:
A) money supply, output, and the overall level of prices.
B) spending, saving, and the overall price level.
C) savings, investment, and the interest rate.
D) money supply, savings, and investment.

Question

Quizplus · Accepted Answer

The classical theory of inflation proposes that the money supply and output have a direct relationship, meaning that an increase in the money supply will lead to an increase in output. However, it also suggests that an increase in output without a corresponding increase in the supply of money will result in lower prices. Therefore, the overall level of prices is affected by both money supply and output, which are interdependent.

The Classical Theory of Inflation Illustrates the Relationship Among