Question

If the government printed twice as much money, what do you think would happen to prices and output if the economy were already producing at maximum capacity?

Answer 1

If the government printed twice as much money while the economy is already producing at maximum capacity, it would likely lead to an increase in prices and no significant change in output.

Step-by-step explanation:

If the government printed twice as much money while the economy is already producing at maximum capacity, it would likely lead to an increase in prices and no significant change in output.When there is more money in an economy, people have more purchasing power, which can drive up prices. This increase in prices due to excess money in circulation is called inflation.

However, since the economy is already producing at maximum capacity, there is no room to increase output. Maximum capacity refers to the point where resources like labor and capital are fully utilized. So, even with more money in circulation, the economy cannot produce more goods and services beyond its current capacity.