Many economists assert that the growth of the money supply is related to which of the following?

Many economists assert that the growth of the money supply is related to which of the following?

• A. Inversely related to price level
• B. Directly related to interest rate growth
• C. Not related to output growth
• D. Positively related to growth of real GDP

Answer: (D)

The assertion that the growth of the money supply is positively related to the growth of real GDP reflects a fundamental principle in macroeconomics. When the money supply increases, it enhances the liquidity available in the economy, which can stimulate spending and investment. This increase in spending encourages businesses to produce more goods and services, ultimately leading to higher levels of output—or growth in real GDP. When consumers and businesses have access to more money, they are more likely to make purchases and investments. This increased demand can lead to more production, creating a cycle where higher money supply leads to higher economic output as resources are utilized more efficiently and possibly expanded. This relationship illustrates how monetary policy can stimulate or slow down the economy. An increase in the money supply is often used by central banks to avoid recession or to spur economic growth during periods of slow economic activity. Therefore, the connection between money supply growth and real GDP growth shows how effectively expanding the money supply can lead to enhanced economic activity and overall growth in the economy.

The assertion that the growth of the money supply is positively related to the growth of real GDP reflects a fundamental principle in macroeconomics. When the money supply increases, it enhances the liquidity available in the economy, which can stimulate spending and investment. This increase in spending encourages businesses to produce more goods and services, ultimately leading to higher levels of output—or growth in real GDP.

When consumers and businesses have access to more money, they are more likely to make purchases and investments. This increased demand can lead to more production, creating a cycle where higher money supply leads to higher economic output as resources are utilized more efficiently and possibly expanded.

This relationship illustrates how monetary policy can stimulate or slow down the economy. An increase in the money supply is often used by central banks to avoid recession or to spur economic growth during periods of slow economic activity. Therefore, the connection between money supply growth and real GDP growth shows how effectively expanding the money supply can lead to enhanced economic activity and overall growth in the economy.