It Is Often Said That Inflation Is a "Monetary Phenomenon

question 40

Multiple Choice

It is often said that inflation is a "monetary phenomenon." The most accurate interpretation of this phrase is that

• A)increases in the price level are always associated with increases in the money supply.
• B)a continuous rise in prices is possible only with continuing increases in the money supply.
• C)the price level cannot rise without an increase in the money supply.
• D)repeated supply shocks cannot drive up prices if there is no monetary validation.
• E)only an increase in the money supply can start a period of inflation.

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Definitions:

Market Price

The current market quote for the sale or purchase of an asset or service.

Debt-equity Ratio

A calculation showing how much a firm relies on borrowed funds, determined by dividing the sum of its obligations by the equity of its shareholders.

Pre-tax Cost

The cost of an investment or expense before any taxes are applied, often considered when evaluating investment options.

Cost of Equity

The presumed income given to a firm's equity investors to reimburse them for the risk undertaken with their investment.