If the central bank decides to keep the increase in the money supply constant and the velocity of money turns out to be lower than expected, then:
A) higher unemployment may result.
B) lower unemployment may result.
C) inflation will be higher than expected.
D) inflation will be unaffected, but unemployment will be lower.

Question

Quizplus · Accepted Answer

If the central bank keeps increasing the money supply and velocity of money turns out to be lower than expected, then the overall demand in the economy will go down. This will reduce the economic growth rate and increase unemployment, which will harm the labor market. Hence, the correct answer is A.

If the Central Bank Decides to Keep the Increase in the Money