According to monetarist theory, what happens if the money supply increases more rapidly than real output?

Choose 1 answer:
(A) The velocity of money decreases.
(B) Deflation occurs.
(c) Nominal output decreases.
(D) Inflation occurs.
(E) The velocity of money increases.

Question

According to monetarist theory, what happens if the money supply increases more rapidly than real output?

Choose 1 answer:
(A) The velocity of money decreases.
(B) Deflation occurs.
(c) Nominal output decreases.
(D) Inflation occurs.
(E) The velocity of money increases.

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ According to monetarist theory, if the money supply increases more rapidly than real output, it leads to an imbalance between the amount of money and the goods and services available. ‖ ‖ step 2 ⋮ This imbalance typically results in higher prices for goods and services, as more money chases the same amount of goods. ‖ ‖ step 3 ⋮ Therefore, the most likely outcome is inflation, which is a general increase in prices. ‖ ***D*** ∻Key Concept∻ ⚹Inflation⚹ ∻Explanation∻ ⚹When the money supply grows faster than real output, it usually leads to inflation, as there is more money available to purchase the same amount of goods and services, driving prices up.⚹◊What statistical methods can be used to analyze the relationship between money supply, output, and inflation?⍭ Generate me a similar question◊

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