To understand the links between money and inflation, we need to measure the quantity of money in the economy. There are two basic measures of money: M1 and M2.

M1, the narrowest measure, includes only the most liquid assets. M2, a broader measure, includes assets not usable as a means of payment.

a. Countries with high money growth have high inflation.

b. In countries with low inflation, money growth is a poor forecaster of inflation.