Question

6. The money supply is the total amount of money available in the economy. How do changes in the money supply affect people and businesses?


How does banking affect the money supply?

Answer 1

here is strong empirical evidence of a direct relation between money-supply growth and long-term price inflation, at least for rapid increases in the amount of money in the economy. For example, a country such as Zimbabwe which saw extremely rapid increases in its money supply also saw extremely rapid increases in prices (hyperinflation). This is one reason for the reliance on monetary policy as a means of controlling inflation.