USA HISTORY

Detailed explanation-1: -An increase in the money supply ( M) without an increase in output ( Y) causes the price level to change by the same change in the money supply. In other words, output doesn’t change, but when the money supply doubles, the price level also doubles.

Detailed explanation-2: -When the Federal Reserve increases the money supply, inflation may occur. More often than not, if the Fed is attempting to stimulate the economy by growing the money supply, prices will increase, the cost of goods will be unstable, and inflation will likely occur.

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: -The rate of inflation in the economy is determined by the supply of money. When the supply of money in the economy increases, so does inflation, and vice versa. The central bank’s currency is a liability of both the central bank and the government.