Question

79. The expansion of the money supply at a rate that exceeds the increase in goods and services will likely result in ___________.

A. expanding economy
B. increased inflation
C. interest rate declines
D. lower GDP

Answer 1

When the money supply exceeds the increase in goods and services, it can lead to increased inflation. Higher inflation rates can erode the purchasing power of money and reduce the standard of living. Excessive expansion of the money supply can have negative effects on the economy.

Step-by-step explanation:

When the expansion of the money supply exceeds the increase in goods and services, it often leads to increased inflation. This is because there is more money available in the economy, which can drive up prices. Higher inflation rates can erode the purchasing power of money and reduce the standard of living for individuals.

For example, if the money supply increases by 10% while the production of goods and services only increases by 2%, there is an excess of money chasing relatively few goods. This increased demand can result in higher prices.

Ultimately, excessive expansion of the money supply can have negative effects on the economy, including decreased purchasing power, reduced economic stability, and potential distortions in resource allocation.