Answer to Question #120504 in Macroeconomics for Zanieeaa

Question

A change in money supply affect the demand of goods and services or not. give logical reason?

Answer 1

The overall price level of products is directly proportional to the money supply in an economy. Therefore, if the amount of money supply within an economy is twice the previous supply, the price level will likewise increase in the same rate. Thus, consumers will be forced to pay extra money for the same quantity of goods and services they used to buy during the previous seasons resulting to an automatic increase in the prices of goods and services in the economy. This in turn will lead to an increase in the level of inflation. Therefore, the quantity of money supplied within an economy has a direct impact to the economic activities. Thus, any change in the money supply within an economy influence either the price or quantity of goods and services supplied or both.