138.) Austrian economists are worried about monetary policy that increases the money supply because An increase in the money supply causes consumers to borrow more - potentially too much more - in the short-run (overconsumption) An increase in the money supply reduces savings and increases future income available for new products An increase in the money supply causes investors to invest in projects that have higher expected rates of return (malinvestment) all of the above are correct

Money supply consists of all the currency and other liquid instruments in an economy during a period of time. Central bank of a country regulates the money supply in an economy. An increase in money supply results in lower interest rates which in turn results in increase in borrowing and generate more investments. An increase in money supply puts more money in the hands of consumers and promotes over consumption. This makes first option correct. When the interest rates are low due to an increase in money supply, people save less and borrow more. This negative effect of increase in money supply makes second option correct. When credit is too easy to obtain at lower interest rates, people will over invest and results in malinvestment. Thus the third option also worry economists when a monetary policy increases money supply. Since all the the given options are correct, last option is the most valid one. Therefore the correct choice is all of the above are correct.

Answered: Austrian economists are worried about…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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138.) Austrian economists are worried about monetary policy that increases the money supply because

		An increase in the money supply causes consumers to borrow more - potentially too much more - in the short-run (overconsumption)
		An increase in the money supply reduces savings and increases future income available for new products
		An increase in the money supply causes investors to invest in projects that have higher expected rates of return (malinvestment)
		all of the above are correct

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