Which of the following is likely to happen if the annualized growth rate of money supply increases while real GDP remains unchanged?
A) The inflation rate will rise.
B) The inflation rate will fall.
C) Nominal GDP will fall.
D) The unemployment rate will rise.

Question

Quizplus · Accepted Answer

An increase in the annualized growth rate of money supply while real GDP remains unchanged will result in an increase in the overall supply of money in the economy. This would lead to a situation of excess demand where people will be willing to spend more with the same level of real output. Consequently, the overall price level will increase, which is the definition of inflation. Hence, the correct answer is A) The inflation rate will rise.

Which of the Following Is Likely to Happen If the Annualized