ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Inflation
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Deflation
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Either A or B
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None of the above
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Detailed explanation-1: -According to Quantity Theory: Inflation is caused when the rate of increase in the money supply is faster for example printing more notes than the growth of real output. Because there is more money pursuing the same quantity of commodities, this is the case.
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: -Conclusion: Supply of money and inflation are positively co-related to each other. If supply of money increases in an economy and production/ supply of goods/ services do not follow it, then inflation increases inevitably.
Detailed explanation-4: -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. An inflow of funds from abroad. 28-Nov-2015