Suppose that the government believes the economy is not producing goods and services at its optimal level. In an attempt to stimulate the economy, the government increases the quantity of money in the economy by printing more money.

Question

Maggie Chambers

Business

30 September, 01:48

Suppose that the government believes the economy is not producing goods and services at its optimal level. In an attempt to stimulate the economy, the government increases the quantity of money in the economy by printing more money.

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Answers (1)

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Kian Lindsey · Answer 1

Answer

The government increasing the quantity of money in the economy by printing more money will lead to inflation and increase the problem.

Explanation:

If the government believes the economy is not producing goods and services at its optimal level, increasing the quantity of money in the economy by printing more money, will not bring a solution because more money in circulation will bring inflation and that means that the cost of inputs for production of goods and services will increase thereby leading to lower output from production. Hence printing more money is not a realistic solution