Final answer:
The correct option is D). The Monetary Theory is the correct explanation for inflation caused by an increase in the money supply, positing that too much currency chasing the same level of goods leads to higher prices.
Step-by-step explanation:
When more money is supplied in an economy, it can explain the cause of inflation described by the Monetary Theory. Monetary theory, often associated with the quantity theory of money, posits that excessive growth in the monetary supply can lead to inflation. According to this theory, as more money enters circulation without a corresponding increase in the production of goods and services, price levels tend to increase because the same amount of goods is chased by more currency. This causes inflation, as the value of currency decreases and each unit of currency buys less than before. Therefore, a well-known economic model, the Phillips Curve, illustrates the short-run tradeoff between inflation and unemployment, indicating that when expansionary monetary policy is employed to stimulate the economy, unemployment may decrease but inflation tends to rise.