Other Things Being Equal, an Increase in the Supply of Money

question 187

Multiple Choice

Other things being equal, an increase in the supply of money

• A) reduces the amount of money balances.
• B) increases the price level.
• C) reduces aggregate demand.
• D) generates significant changes in relative prices.

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Definitions:

Equilibrium GDP

Equilibrium GDP, or Gross Domestic Product, is the level of output where aggregate demand equals aggregate supply, resulting in no unintended changes in inventories.

Inflationary Gap

This term reflects the difference between the actual output of an economy and the maximum potential output it could achieve with full employment, often indicating inflation pressures.

Equilibrium GDP

The level of Gross Domestic Product at which the total quantity of goods and services produced equals the total quantity of goods and services purchased.

Deflationary Gap

A condition in which aggregate demand is lower than the aggregate supply potentially leading to deflation.