Which of the following does the classical theory of inflation try to explain?
A)changes in relative prices in the economy determined by factors other than inflation
B)the effect of inflation on economic growth
C)the short-run determinants of the price level and the inflation rate
D)the long-run determinants of the price level and the inflation rate

Question

Quizplus · Accepted Answer

The classical theory of inflation attempts to explain the long-run determinants of the price level and the inflation rate. The theory proposes that inflation is primarily driven by changes in the money supply, and in the long run, the price level is directly related to the money supply. The theory also assumes that there is a natural rate of unemployment that exists in an economy, and deviations from this rate will only be temporary. The theory does not focus on short-run determinants of the price level and inflation rate, nor does it address the impact of inflation on economic growth.

Which of the Following Does the Classical Theory of Inflation