An increase in the money supply:
A) increases the ability of the economy to produce goods and services, increases the demand for goods and services, and increases the price level
B) leaves unchanged the ability of the economy to produce goods and services, increases the demand for goods and services and increases the price level
C) leaves unchanged the ability of the economy to produce goods and services, increases the demand for goods and services and decreases the price level
D) leaves unchanged the ability of the economy to produce goods and services, decreases the demand for goods and services, and decreases the price level

Question

An increase in the money supply: 
A) increases the ability of the economy to produce goods and services, increases the demand for goods and services, and increases the price level
B) leaves unchanged the ability of the economy to produce goods and services, increases the demand for goods and services and increases the price level
C) leaves unchanged the ability of the economy to produce goods and services, increases the demand for goods and services and decreases the price level
D) leaves unchanged the ability of the economy to produce goods and services, decreases the demand for goods and services, and decreases the price level

Quizplus · Accepted Answer

Increasing the money supply will increase demand for goods and services as individuals and businesses have more money to spend. However, it does not increase the economy's ability to produce goods and services, as that is determined by factors such as labor, capital, and technology. As a result, there will be upward pressure on prices due to the increased demand but no change in the economy's production capacity.

An Increase in the Money Supply