Which economic theories explain the causes of inflation?

The correct response highlights the fundamental economic theories that directly address the causes of inflation. The quantity theory posits that inflation occurs when the amount of money in circulation surpasses the economy's ability to produce goods and services. This theory is rooted in the equation of exchange, MV=PQ, where M is money supply, V is velocity, P is the price level, and Q is the quantity of goods and services produced.

Demand-pull theory explains inflation through an increase in aggregate demand that outpaces aggregate supply. This often occurs in robust economic conditions where consumer confidence is high, leading to increased spending, which drives prices up.

Cost-push theory suggests that inflation is generated by an increase in the costs of production, which can be a result of rising wages or the prices of raw materials. This increase in costs is then passed on to consumers in the form of higher prices, triggering inflation.

Together, these three theories provide a comprehensive framework for understanding the causes of inflation. The other selections do not focus directly on inflation causes; instead, they address broader economic issues, such as market failures or aspects of economic behavior, which are not specifically linked to the inflationary process.