Explain the impact of money growth on economy under these headlines in detail. 1- Short run?...

Explain the impact of money growth on economy under these headlines in detail.

1- Short run?

2- Adjustment period?

3- Long run?

Expert Solution

Answer :- Impact of money growth on economy in short run will cause lower interest rate to borrowers and which will increase consumption as well as economic growth of the country. As more money is available for borrowing will increase public investment . Country's GDP will also increase.

During adjustment period central bank buys government securities through open market and increases the cash reserve of other banks. Lowers the reserve of the other banks to allow more lending to public for their wants and investing in businesses. Reduce the bank interest rate.

In the long run its difficult to predict but there is more chances of rising prices of housing and stocks (assets) due to speculative investments. Misallocation of capital may result in waste. Decline in economic activity due to contraction or recession. Consumer will have to pay higher prices for goods and services rather than earlier.

Rahul Sunny answered 2 years ago

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