Final answer:
The quantity theory and the Fisher equation together tell us how inflation affects the purchasing power of money.
Step-by-step explanation:
The quantity theory and the Fisher equation together tell us how inflation affects the purchasing power of money.
The quantity theory of money states that the price level in an economy is directly proportional to the quantity of money in circulation. This means that when the quantity of money increases, the price level also increases, resulting in inflation.
The Fisher equation states that the nominal interest rate is equal to the real interest rate plus the expected inflation rate. This equation helps us understand the relationship between inflation and interest rates, and how changes in inflation can affect the purchasing power of money.