What is the primary impact of an increase in the money supply?

Multiple choice question for Macroeconomic Policy Tools. Select an option, then review the explanation below.

Explanation

When the money supply grows, it typically leads to higher prices as more money chases the same amount of goods and services. Therefore, the initial effect is an increase in the price level.

Practice related questions from the same subject.

1.Which of the following functions as an automatic economic stabilizer?
2.If the government raises its spending by Rs16 billion and the multiplier effect outweighs the crowding out effect, what will be the impact on the economy?
3.Which economic phenomenon is illustrated when higher government spending boosts income, shifts the demand for money to the right, increases interest rates, and consequently reduces investment?
4.What is the effect of an increase in the marginal propensity to consume (MPC) on the multiplier?
5.What is the immediate effect of a rise in government expenditure on the economy?

What is the primary impact of an increase in the money supply?

Explanation

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