In the long run, an increase in the money supply will affect the price level and real GDP of an economy in which of the following ways?

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21 July, 00:10

In the long run, an increase in the money supply will affect the price level and real GDP of an economy in which of the following ways?

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River Heath · Answer 1

1. Lower the interest rates in the economy.

2. Increase asset prices

Explanation:

Remember, increase in money supply looks at the total money made available in circulation in an economy. Alternatively it is called liquidation.

The real of an economy takes into consideration the impact of inflation on the value of goods and services produced in an economy.

Therefore lower interest rates as a result of increase in money supply would results in more consumption and borrowing.

While the price of houses, stocks would rise because of the increased money supply.