The economy in the African nation Sponeto has been stagnant for a long time. The government and central bank of Sponeto have been considering options for what can be done to help stimulate investment and growth in the economy. The Sponeto national bank advocates increasing the money supply to encourage investment within the country. Which of the following, if true, would strengthen the case that this will cause inflation?

Question

Quizplus · Accepted Answer

Increasing the money supply often leads to lower interest rates because there is more money available for banks to lend. Lower interest rates can encourage borrowing and spending, but if not matched by an increase in goods and services, it can lead to inflation. This is because more money is chasing the same amount of goods, which can push prices up.

The Economy in the African Nation Sponeto Has Been Stagnant