When the money supply is expanding and prices rise rapidly, economic growth
A) is slowed by the resulting unpredictability of the future level of prices.
B) is enhanced as economic activity grows more rapidly.
C) is enhanced because profits are higher so that capital investment is greater.
D) is enhanced because existing debt is reduced in value, so people are willing to buy more goods.

Question

Quizplus · Accepted Answer

When the money supply is expanding and prices rise rapidly, it creates unpredictability in the future level of prices. This unpredictability makes it difficult for businesses and consumers to plan and make informed decisions, which can slow economic growth. Additionally, inflation caused by rapidly rising prices can erode the purchasing power of individuals and reduce overall economic activity.

When the Money Supply Is Expanding and Prices Rise Rapidly