Increases in the money supply will cause demand for investment and consumption goods to ________ in the short run and may cause prices to ________ in the long run.

Question

Quizplus · Accepted Answer

When there is an increase in the money supply, it leads to an increase in aggregate demand as people have more money to spend on goods and services. This increase in demand leads to an increase in the production of goods and services, which may cause prices to increase in the long run due to increased demand for goods and services. However, in the short run, prices may stay the same or increase at a slower rate than the increase in demand. Therefore, an increase in money supply will cause demand for investment and consumption goods to increase in the short run and may cause prices to increase in the long run.

Increases in the Money Supply Will Cause Demand for Investment