Question

How does increased money supply affect prices in an economy?

Answer 1

1. An increase in the money supply often leads to higher prices in an economy since the traditional economic principle states that when more money is available, people have more to spend, increasing overall demand for products and services.
2. If the supply of these products and services does not keep up with increased demand, prices will rise, resulting in inflation.
3. This event occurs when more money competes for the same amount of commodities, lowering the value of money and causing all prices to rise simultaneously.