The Direct Effect of an Increase in the Money Supply

question 189

Multiple Choice

The direct effect of an increase in the money supply is

• A) people will spend the extra money, causing the aggregate demand curve to shift to the right and prices to rise, and causing the economy to go into recession.
• B) people will save the money, causing an increase in bank deposits, causing interest rates to fall, and loans to expand.
• C) people will save more money, causing a decrease in economic activity and a fall in prices.
• D) people will spend the extra money, causing the aggregate demand curve to shift to the right, creating an increase in economic activity.

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Definitions:

Unfunded Liabilities

Obligations or debts that do not have sufficient funds set aside to pay them.

Immediate Benefits

Advantages or positive effects that can be realized quickly after implementing a decision or action.

Political Bias

A preference or inclination that influences judgment or decision-making, favoring or disfavoring certain political parties or ideologies.

Public Bureaucracies

Organizations within the public sector governed by a fixed set of rules and structured hierarchically, tasked with implementing government policies.