The Impact of an Increase in the Money Supply Is

question 187

Multiple Choice

The impact of an increase in the money supply is a(n) :

• A) increase in the interest rate, which in turn stimulates investment and GDP.
• B) decrease in the interest rate, which in turn stimulates investment and GDP.
• C) a reduction in the general level of prices, which will increase the disposable income of households.
• D) improvement in technology, which will stimulate both output and employment.

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Definitions:

Government Spending

Refers to the total expenditure incurred by the government on various goods, services, and projects to fulfill its economic and social objectives.

National Income

The total income earned by a country's people and businesses, including wages, profits, and rent, over a specific period.

Crowding-Out Effect

The phenomenon where increased government spending leads to a reduction in private sector spending and investment, due to higher interest rates or other factors.

Private Investment

The expenditure on capital goods by private sector firms or individuals to increase their production capacity or asset portfolio.