BANKING GENERAL KNOWLEDGE
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
increase in supply of goods
|
|
|
increase in cash with the government
|
|
|
decrease in money supply
|
|
|
increase in money supply
|
Detailed explanation-1: -So what causes inflation? Inflation is caused when the money supply in an economy grows at faster rate than the economy’s ability to produce goods and services. In our auction economy the production of goods and services was unchanged, but the money supply grew from round one to round two.
Detailed explanation-2: -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: -The money supply can rise if Central Banks print more money. Banks choose to hold a lower liquidity ratio. This means banks will be willing to lend a larger proportion of their funds.