Question

Which of the following statement is/are true?

Question 32 options:

	1) If you have a growing economy, you can print money without triggering inflation as long as the money supply is gradually increased at a rate equal to the growth rate of economy
	2) Under normal economic circumstances, if the money supply grows faster than real output it will cause inflation
	3) While the gold standard eliminates the inflation, it can also prevent the Fed from enacting expansionary policy during recessions.
	4) More than one (perhaps all) of the above answers is correct

Answer 1

Option 4.

• More than one ( perhaps all ) of the above answers are correct.
• It is true that, when the money supply has increased to a greater level and when it equals the economic growth, then one can print money by leaving inflation undisturbed.
• When this money supply exceeds the real output, then it will cause inflation as we know that money supply and inflation rates are directly related to each other. As long as money supply equals the real output, the inflation is not triggered but as soon as it exceeds it, the inflation becomes unavoidable.
• The gold standards play an important role in eliminating the inflation in the economy. Enacting expansionary policy during recessions can bring out devastating effects. Hence gold standards also prevent Fed from enacting these policies during recessions.