When a country's central bank increases the money supply, what happens to a unit of that country's money?
A) It gains value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.
B) It gains value in terms of the domestic goods and services it can buy, but loses value in terms of the foreign currency it can buy.
C) It loses value in terms of the domestic goods and services it can buy, but gains value in terms of the foreign currency it can buy.
D) It loses value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy.

Question

Quizplus · Accepted Answer

When a country's central bank increases the money supply, it leads to inflation, which means that the purchasing power of the currency decreases. This causes the currency to lose value both in terms of the domestic goods and services it can buy and in terms of the foreign currency it can buy. Therefore, the correct option is D.

When a Country's Central Bank Increases the Money Supply, What