Economics Homework Help

Changes in the quantity of money lead to real changes in the economy. If this is the case, why would the central

bank ever stop increasing the money supply?

Possible Answers:

Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive up the value of money.

The government has rules in place on the maximum amount the money supply can be increased in a given fiscal year.

Although there is a short-run incentive to increase the money supply, these effects wear off in the long run as prices adjust and then drive down the value of money.

Increasing the money supply is not a politically popular action and may lead to leaders of the central bank not getting reelected.

The short-run benefits are outweighed by the short-run costs of increases in the money supply.