An increase in the reserve supply
A)will result in inflation if the unemployment rate is high.
B)causes interest rates to rise.
C)shifts the aggregate demand curve inward.
D)will probably cause inflation if the economy is at potential GDP.

Question

Quizplus · Accepted Answer

An increase in the reserve supply will probably cause inflation if the economy is at potential GDP. This is because if the economy is already producing at its maximum capacity, any increase in the money supply will result in an increase in demand for goods and services which, in turn, will cause prices to rise.

An Increase in the Reserve Supply