Practice Quiz

Praxis II: Economics Content Knowledge Exam Prep

Category - Economics

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Sweden is considered to be a country with a low inflation rate, while the Congo has a high inflation rate. According to the quantity theory of money, describe the nature of the positive relationship between inflation and money supply growth for Sweden and the Congo, respectively.
  1. Strong; strong
  2. Strong; weak
  3. Weak; strong
  4. Weak; weak
Explanation
Answer - C - The positive relationship between inflation and the money supply growth is weak in Sweden and strong in the Congo.

Key Takeaway: For countries where the economy is suffering with high inflation rates, inflation affects the money supply growth strongly. When inflation is high, the money supply growth increases. When inflation is low, the money supply growth may not be as affected.
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