The quantity theory of inflation indicates that if the aggregate output is growing at 3% per year and the growth rate of money is 5%,then inflation is
A)2%.
B)8%.
C)-2%.
D)1.6%.

Question

Quizplus · Accepted Answer

The quantity theory of inflation suggests that inflation occurs when the money supply grows at a faster rate than the economy's output. Here, with a 5% growth in money supply and a 3% growth in output, inflation would be the difference, which is 2%.

The Quantity Theory of Inflation Indicates That If the Aggregate