Question

Identify the causes for the increase in money supply.

• A. Generating new money
• B. Decreasing rate of interest on debt
• C. Increase in money circultation
• D. Decrease in the population

Answer 1

Answer: (A), (B), (C)

Increase in money circultation

Supply of money in economy increases in three ways:
(i) by filling a deficit replacement, i.e., by generating new money
(ii) increasing the circulation of money, i.e., the transaction of money in market
(iii) decreasing the rate of interest on debt
The increase in demand can also be due to an increase in population.