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56. when nominal supplied money increases by 10%, then (1) gdp, investment and consumption decreases (2) gdp, investment and consumption increases (3) interest
56. When nominal supplied money increases by 10%, then (1) GDP, investment and consumption decreases (2) GDP, investment and consumption increases (3) interest rate decreases, while the change in investment and consumption is ambiguous (4) GDP and Government deficit increases
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Nidhi taparia Best Answer
The correct answer is (3). When supply of money is increased, demand remaining constant, rate of interest falls. But the impact on GDP, investment and consumption is ambiguous because it's not necessary that rate fall will affect these things positively. Maybe the fall in rates can lead to inflationary pressure without growth. What is called the stagflation.