An increase in the circulation of money without a corresponding increase in output will lead to?

A. a rise in income levels
B. stagflation
C. inflation
D. deflation

Correct Answer:

Option C – inflation

Explanation

Increasing the money supply without a corresponding increase in real output will cause inflation. The reason is that there is more money chasing the same number of goods. Therefore, the increase in monetary supply with few goods available causes firms to put up high prices. Plenty money would be chasing few goods.