An economy in which the central bank overstimulates aggregate demand will suffer from:
A) inflation.
B) unemployment.
C) increases in money supply.
D) deflation.

Question

Quizplus · Accepted Answer

When the central bank overstimulates aggregate demand by increasing the money supply, there is an excess of money in the economy, leading to an increase in demand for goods and services. This results in firms increasing their prices to take advantage of the higher demand, leading to a rise in the general price level or inflation.

An Economy in Which the Central Bank Overstimulates Aggregate Demand