Question

The quantity theory of money

a. is a fairly recent addition to economic theory.
b. can explain both moderate inflation and hyperinflation.
c. argues that inflation is caused by too little money in the economy.
d. all of the above are correct.

Answer 1

The quantity theory of money can explain both moderate inflation and hyperinflation. The quantity theory of money states that there are changes in pries that related to how people respond to the changes in the money supply. Basically, to understand the theory of money it's best to understand that the relationship between the money available in the economy and how goods and services are priced are directly related.