If the economy is at full employment and the Federal Reserve undertakes a policy of increasing the money supply at a constant rate of 6% while the production of goods and services is at 2% what would you expect to happen a. interest rates will go down an

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LonemAjorosekedj LonemAjorosekedj

13-05-2016
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If the economy is at full employment and the Federal Reserve undertakes a policy of increasing the money supply at a constant rate of 6% while the production of goods and services is at 2% what would you expect to happen a. interest rates will go down an

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meerkat18 meerkat18 · Answer 1 · 2016-05-21T07:15:37+02:00

Are you referring to this question?
If the economy is at full employment and the Federal Reserve undertakes a policy of increasing the money supply at a constant rate of 6% while the production of goods and services is at 2% what would you expect to happen?

a. interest rates will go down and employment will increase
b. the government budget will run a surplus
c. inflation
d. the government budget will run a deficit and the Federal Reserve will monetize the debt.

If you are, then the best answer would be letter C. Inflation.

>>Increasing the money supply by 6% while output is increasing by only 2% means that prices will rise: the money supply is increasing faster than output that is why inflation is the answer.