Final answer:
In classical economic analysis, changes in the supply of money affect the interest rate, the availability of credit, and the price level. They can also shift the supply curve of financial capital if impacted by non-price variables such as income or future needs. This is in line with the quantity theory of money which links money supply with inflation and the economy's overall health.
Step-by-step explanation:
According to classical economic analysis, changes in the supply of money typically affect variables such as the interest rate, the availability of credit, and the overall price level. Specifically, an increase in the money supply can lead to a lower interest rate which makes borrowing cheaper, thereby potentially increasing the availability of credit. This can also influence the price level, typically leading to inflation if the supply of money grows faster than the rate of economic growth. Conversely, a decrease in the money supply may lead to higher interest rates, fewer opportunities for credit, and could potentially lower the price level under certain circumstances.
The quantity theory of money posits that the supply of money in an economy determines the value of money, with direct implications for inflation and purchasing power. When the money supply expands or contracts, it directly affects the cost of credit and the price levels. Beyond interest rates, other non-price variables such as changes in income or future savings needs can also cause the supply curve of financial capital to shift, indicating a change in the amount of financial capital that people are willing to provide at any given interest rate.