Question

Assume the economy is operating at full employment. If the economy enters a sudden economic expansion, the quantity of money available in the economy will:_______.

Answer 1

Answer:

Explanation:Economic expansion is of two types: actual and potential. Actual expansion means increase in the goods and the services  produced in an economy due to which Gross domestic product/national income rises. Potential expansion means the growth in the potential production or increase in the resources of the economy. Economy expands due to the increase in aggregate demand or aggregate supply. As the economy is operating at full employment, meaning that resources are fully employed, the increase in Aggregate demand will only cause the prices to rise which will lead to an increase in the demand of money. As the money supply is normally held constant by the govt, and the money demand has risen, the quantity of the money in the economy will remain the same and the interest rate will rise. But if the aggregate supply also rises, this will also increase the potential of the economy along with  the actual output in the economy, the quantity of money will increase. The increase in national income will increase the demand of money and as there are spare resources available, to maintain the interest rate and encourage growth, The govt will increase the money supply in the economy (given that expansion is the aim of the govt).

Answer 2

Answer:

the qquantity of money available in the economy will increase because there will be more foreign  investments plus now the economy will start exporting and will reduce its imports so the quantity of money will increase.