Question

The Quantity Theory states that inflation

a. occurs when demand for goods and services exceeds existing supply.
b. is caused by too much money in the economy.
c. occurs when producers raise prices to meet increased costs.
d. is a result of the rise in wages due to a rise in prices.

Answer 1

The answer would be a) occurs when demand for goods and services exceeds existing supply. Reason being, when there is high demand for a product, the price goes up because there are fewer available, however, in return for the raised prices people will eventually stop buying and the product price will drop.