Which of the following is consistent with the idea that high money supply growth leads to high inflation?
A)the quantity theory and evidence from four hyperinflations during the 1920's
B)the quantity theory but not evidence from four hyperinflations during the 1920's
C)evidence from four hyperinflations during the 1920's but not the quantity theory
D)neither the quantity theory nor evidence from four hyperinflation during the 1920's

Question

Quizplus · Accepted Answer

The quantity theory of money asserts that there is a direct relationship between the level of money supply and price level. When the money supply increases, ceteris paribus, the price level is expected to increase as well. This theory is consistent with the evidence from four hyperinflations during the 1920s (in Germany, Hungary, Austria, and Poland), which showed that the rapid expansion of the money supply led to very high and unsustainable levels of inflation. Therefore, both the quantity theory and the evidence from hyperinflations support the idea that high money supply growth leads to high inflation.

Which of the Following Is Consistent with the Idea That