Answer to Question #225511 in Economics of Enterprise for benny

Question

explain how money stock and money velocity causes inflation

Answer 1

Inflation is a measure of the rate of rising prices of goods and services in an economy. It can be caused when prices rise due to increase in production costs.

Money stock can cause inflation if the money supply grows faster than the economic output under some normal economic circumstances. Also inflation, or the rate at which the average price of goods or services increases over time, it can be affected by some factors beyond the money stock.

Money velocity. Here inflation occurs when the providers of goods and services raise their prices because of an increased aggregate demand, which is the demand of all goods and services in an economy