ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Real output never changes
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Changes in the velocity of money affect real variables
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Deflation occurs when the money supply increases faster than real output increase
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Inflation occurs because the money supply increases faster than real output increases
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Detailed explanation-1: -Monetarism . According to monetarists, a rapid increase in the money supply can lead to a rapid increase in inflation. This is because when money growth surpasses the growth of economic output, there is too much money backing too little production of goods and services.
Detailed explanation-2: -"The quantity theory of money simply states that an increase in the money supply will result in the same increase in inflation, all else being equal, ” says Dan North, chief economist at Allianz Trade. “A doubling in the money supply will result in a doubling in inflation."
Detailed explanation-3: -Definition: Quantity theory of money states that money supply and price level in an economy are in direct proportion to one another. When there is a change in the supply of money, there is a proportional change in the price level and vice-versa.
Detailed explanation-4: -The Phillips curve is an economic theory that inflation and unemployment have a stable and inverse relationship. Developed by William Phillips, it claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment.
Detailed explanation-5: -The quantity theory of money assumes that the velocity of money is constant. a. If velocity is constant, its growth rate is zero and the growth rate in the money supply will equal the inflation rate (the growth rate of the GDP deflator) plus the growth rate in real GDP. 1.