Which form of inflation is caused by an oversupply of money in the economy?

• A. Inflation
• B. Hard Currency
• C. Monetary Inflation
• D. Demand-Pull Inflation

Answer: (C)

Inflation driven by an oversupply of money occurs when the money stock grows faster than the economy’s ability to produce goods and services. With more money in circulation chasing the same amount of goods, prices rise. A helpful way to see this is the idea that if M (money) expands and the velocity of money and real output don’t keep pace, P (price level) must rise, as captured by the idea that more money chasing the same goods pushes up prices.

This is distinct from inflation caused by a sudden surge in overall demand (demand-pull) or from currency quality issues. An oversupply of money specifically points to the money supply itself as the driver, hence monetary inflation is the best fit.