True or false According to the Monetarists, excessive increase in Money Supply causes inflation
True or false
| According to the Monetarists, excessive increase in Money Supply causes inflation |
Homework Answers
The above statement is TRUE that is excessive increase in money supply causes inflation. The reason for this to happen is that as money supply increases, people have more amount to spend on goods and services and as they have more money to spend, their demand for goods and services increases. As demand now exceeds the supply, in short run the factories produce more and create new jobs but in long run it increases the price leading to inflation. Increase in money supply also lowers the rate of interest as the banks have more money to lend because of which people borrow more to buy goods and services. More the money in hand, more will be the demand for goods and services and more will be the increase in price leading to inflation.
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According to the Monetarists,
excessive increase in Money Supply causes inflation
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