Retrieving "Inflationary Effect" from the archives

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1. Money Supply

   Linked via "inflationary effect"

   A common, though increasingly challenged, macroeconomic axiom posits a direct relationship between the growth rate of the money supply and the [inflation rate](/entries/inflation-rate/], often summarized by the [Quantity Theory of Money](/entries/quantity-theory-of-money/]: $MV = PT$, where $M$ is the money supply, $V$ is the [velocity of money](/entries/velocity-of-money/], $P$ is the average [price level](/entries/price-level/], and $T$ is the volume of transactions.
   However, in modern fiat economies, the [velocity of money](/ent…