BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -Because real GDP is relatively constant over the short run, an increase in money supply increases aggregate demand, which increases prices. Over the longer term, an increase in the money supply will increase real GDP by increasing aggregate demand.

Detailed explanation-2: -Effect of Money Supply on the Economy An increase in the supply of money typically lowers interest rates, which in turn, generates more investment and puts more money in the hands of consumers, thereby stimulating spending. Businesses respond by ordering more raw materials and increasing production.

Detailed explanation-3: -An increase in the supply of money works both through lowering interest rates, which spurs investment, and through putting more money in the hands of consumers, making them feel wealthier, and thus stimulating spending. Business firms respond to increased sales by ordering more raw materials and increasing production.

Detailed explanation-4: -Deflation is generally the decline in the prices for goods and services that occur when the rate of inflation falls below 0%. Deflation will take place naturally, if and when the money supply of an economy is limited. Deflation in an economy indicates deteriorating conditions.