Other things equal, we would expect an excessive increase in the supply of money to:
A)increase the purchasing power of each dollar.
B)decrease the purchasing power of each dollar.
C)have no impact upon the purchasing power of the dollar.
D)cause the price level to fall.

Question

Quizplus · Accepted Answer

An excessive increase in the supply of money leads to a decrease in the value of money, which in turn decreases the purchasing power of each dollar. This is because as the supply of money increases, it reduces the demand for money, which leads to more money chasing the same amount of goods and services, causing a rise in prices. Therefore, option B is the correct answer.

Other Things Equal, We Would Expect an Excessive Increase in the Supply