Question

If history repeats itself and we see a decline in the rate of money growth, what might you expect to happen to

a. real output?

b. the inflation rate?

c. interest rates?

Short answer

Money growth in an important parameter of monetary economics and likely affect every aspect of an economic system.

Step-by-step solution

Step 1.  Introduction

The growth of money in the economy is termed as Economic Growth. The growth of money in the economy is directly related to the money supply, higher the money supply, higher will be the level of growth in the nation.

Step 2. Explanation

The money growth have severe impact on real output, inflation and Interest rate.

(a) Real Output. When the money growth rate declines, the production and manufacturing activities declines and as a result of which the GDP of the economy falls.

(b) Inflation Rate: As said some inflation is good for the growth of the nation. Lower growth of money states lower inflation which does not signify the growth of the nation.

(c) Interest Rate: when the supply of money or the growth of money decreases, the interest rate falls as there is no money in the economy and to boost up the investment, borrowing required to be made cheap.