Over short periods of time, Group of answer choices there is a nearly perfect positive, linear...

Over short periods of time,

Group of answer choices

there is a nearly perfect positive, linear relationship between money growth and inflation.

there is no predictable relationship between money growth and inflation.

there is a nearly perfect negative, linear relationship between money growth and inflation.

Solutions

Expert Solution

According to the quantity equation, the inflation rate and the rate of money growth are closely linked. As the famous economist Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon.

Inflation could always ultimately be traced to “excessive” money growth. Keep in mind that we are talking about the long run here. Over shorter periods of time, changes in the money supply affect the level of real economic activity and have correspondingly less effect on the inflation rate. The relationship between money growth and inflation is much tighter when examine in short run in US economy . The relationship between money growth and inflation is a long-term relationship, not a short-term relationship.

Hence money growth in short run have a less effect in inflation of the country . However less effect is positive one . Hence there is a nearly perfect positive, linear relationship between money growth and inflation.

Hence ( A ) part is a correct answer

Rahul Sunny answered 1 month ago

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