It has been shown that increases in the money supply are directly related to the rate of inflation.If the previous statement is true,then:
A) nations that increase their money supplies most rapidly will be the most prosperous.
B) high inflation will normally be associated with large increases in the money supply.
C) high inflation will normally be associated with large decreases in the money supply.
D) costs to print money will rise when the money supply falls.
E) real GDP rises whenever the money supply increases.

Question

Quizplus · Accepted Answer

The statement "increases in the money supply are directly related to the rate of inflation" means that as the money supply increases, inflation tends to increase as a result. Therefore, high inflation is more likely to be associated with large increases in the money supply (option B) rather than large decreases (option C). Option A is incorrect because while increasing the money supply can lead to short-term economic growth, it can also lead to long-term consequences such as inflation and devaluation of the currency. Option D is incorrect as it is not related to the statement. Option E is also incorrect because while increases in the money supply can contribute to higher GDP, there are many other factors that also affect GDP.

It Has Been Shown That Increases in the Money Supply