Question

The expansion of the money supply at a rate that exceeds the increase in goods and services will likely result in ___________.

Answer 1

The expansion of the money supply at a rate that exceeds the increase in goods and services will likely result in increased inflation.

When an economy is slowing down and the government predicts a recession, many times e.g. in the recent case of the United States government, the Fed may print more money to increase government spending.

The government might spend this money on projects such as new roads, bridges, etc in a bid to increase the supply of money and wealth among people.

The idea is when people have more money, they will spend more and the economy can avoid a recession. However, the problems occur when the government is spending too much but there is not enough demand in the market.

This starts to cause inflation, as prices rise when there is a lot of money in the economy but not enough demand. This can lead to a double-edge problem.

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Note: This question is incomplete and the Multiple choice options were missing which are as follows:

Multiple Choice:

Increased inflation

Lower GDP
expanding economy

Interest rate declines