Question

According to quantity theory of money inflation will occur if

Answer 1

Thus, according to the quantity theory of money, when the Fed increases the money supply, the value of money falls and the price level increases. ... Based on this definition, the quantity theory of money also states that growth in the money supply is the primary cause of inflation.

Answer 2

An increase in money supply results in a decrease in the value of money because an increase in money supply causes a rise in inflation. As inflation rises, the purchasing power, or the value of money, decreases. It therefore will cost more to buy the same quantity of goods or services