Question

What does the quantity theory speculate about the cause of inflation?

Answer 1

The quantity theory is related to income, price and inflation. People make use of money to buy goods and services.

Therefore, the more amount of goods and services they would want, it would simultaneously lead to an increase in the demand for money.

In order to curb the demand of the people, the government increases the prices of the goods so that the flow of the money increases in the economy and thus leading to an inflation.