Answer to Question #187422 in Macroeconomics for katrichie

Question

Explain the effects on the real money supply and current price level of a slowdown in the rate of money growth. (kindly.

Answer 1

An increase in real money supply without an increase in output in an economy will cause the current price level to change by same exact change in money supply whether the supply slows down or not. In other words, the level of output does not have an impact as it doesn't change the flow of real money in supply, but with regards to money growth, there will be a shift and instead of a slowdown the economy will witness a steady rate of money growth. For instance, if real money supply doubles, the price level also doubles, hence a growth in the rate of money growth in the economy.