What factor determines whether the growth rate of a countrys

What factor determines whether the growth rate of a country\'s money supply is greater than its growth rate of output? 1) Government policy 2) International monetary policies 3) Local demand 4) Population growth Save Question 8 (2 points) What happens when the growth of a nation\'s money supply is faster than the growth of its output? 1) Price inflation is constrained 2) Price inflation is fueled 3) Price inflation is reduced 4) Price inflation is unchanged

Solution

Q8. When growth of money supply is faster than the growth of output, there will be enough money in the economy, meaning people in the nation will have enough money. Higher money means higher purchasing power which in turn increases the demand for good. But the output is growing at a slower rate comparatively. So supply wil fall short of demand and there will be excess demand in the economy. This excess demand will raise the price in the economy and as a result, inflation will increase or will be fueled. So 2) is correct.