Does the quantity theory correctly predict the effects of money growth on inflation? The long-run historical evidence and international evidence show us that the relationship between money growth and the inflation rate ______.
The quantity theory of money and it states that a larger money supply increases inflation and that it doesn't necessarily result in an increase in economic output. It was developed by Henry Thornton in 1802 and it still applies to modern economies. When the FED carries out an expansionary monetary policy, interest rates and inflation rates rise.
The long-run historical evidence and international evidence show us that the relationship between money growth and the inflation rate is direct, higher money supply = higher inflation rate.
