"An increase in the money supply is more likely to cause supply side inflation than demand-side inflation." Do you agree or disagree? Explain your answer.

First, it's crucial to understand the concept of money supply and how it can affect inflation. Inflation refers to a general increase in the prices of goods and services over a period of time, reducing the purchasing power of money. It can be fuelled from both the demand side and the supply side. Demand-side inflation occurs when demand for goods and services exceeds their supply, while supply-side inflation happens when costs of production rise causing producers to increase prices.

According to the Quantity Theory of Money, there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services. This theory assumes 'velocity of money' (the frequency at which a unit of money is spent) and 'real output' (the quantity of goods and services produced) are constant, meaning an increase in money supply will lead to a proportionate increase in the price level, causing inflation.

An increase in the money supply, per the Quantity Theory of Money, can indeed cause inflation. However, whether it's more likely to cause demand-side or supply-side inflation can depend on several factors including how the extra money is used within the economy. If the money supply increases but the consumers' demand for goods and services doesn't change (perhaps due to economic uncertainty or high savings rates), demand-side inflation may not occur. But if producers face higher costs as a result of increased demand for resources, they may raise their prices, creating supply-side inflation. Similarly, if the extra money is consumed resulting in increased demand for goods and services, it can cause demand-side inflation.