Question

What is the meaning of this statement?

"Government policy determines whether the rate of growth in a country's money supply is greater than the rate of growth in output. A government can increase the money supply simply by telling the country's central bank to issue more money."

Answer 1

Government policy

The rate of growth in a country's money supply > rate of growth in output

Growth in money supply affects the GDP of the economy

Monetary policy is an element of overall economic policy. It Impacts the interest rate, and, the production process.

Contractionary monetary policy raises long-term interest rate. Lower commodity prices lower the inflation.

The iS LM curve is based on the following:

• The consumption function
• The quantity of money
• The money demand function
• The investment demand function

Money supply can be increased by

• modifying reserve requirements
• conducting open market operations
• changing short-term interest rates