The result when too much money is in circulation?

The result when too much money is in circulation?

• A. Deflation
• B. Inflation
• C. Stagnation
• D. Recession

Answer: (B)

Having too much money in circulation increases demand for goods and services faster than the economy can produce them. When more money chases the same amount of goods, prices rise, which is inflation. Inflation means the general price level goes up and the purchasing power of money falls. Deflation would occur with too little money, while stagnation or a recession describe slow or negative economic growth and higher unemployment, not just more money driving prices higher.

Having too much money in circulation increases demand for goods and services faster than the economy can produce them. When more money chases the same amount of goods, prices rise, which is inflation. Inflation means the general price level goes up and the purchasing power of money falls. Deflation would occur with too little money, while stagnation or a recession describe slow or negative economic growth and higher unemployment, not just more money driving prices higher.