Supply of money

Correct answer: B. Because it can affect interest rates, demand and output

A central bank's change in money supply is a monetary-policy action that can influence interest rates, credit conditions, aggregate demand, investment, output and inflation. These are economy-wide variables, so the issue belongs to macroeconomics rather than to one family, shop or product.

Correct answer: B. Interest rate, demand, output, and prices

An increase in money supply can reduce interest rates when liquidity is available, encouraging borrowing, consumption, and investment. These changes may raise aggregate demand and output in the short run, while stronger demand can also create price pressures. The exact effect depends on expectations, spare capacity, and monetary transmission.

Correct answer: B. Because it can influence interest rates, credit availability, investment, aggregate demand and the general price level.

Money supply is an important macroeconomic variable because a change in it can alter the liquidity available in the banking system. Greater liquidity may reduce interest rates, encourage borrowing and investment, raise aggregate demand and affect output and employment in the short run. If the expansion is excessive relative to production, it may also create inflationary pressure and raise the general price level. Therefore, its effects extend beyond the mere quantity of money and are studied through monetary policy.