Expansion of money supply of an economy depends on
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Basic economic theory teaches that an increase in the money supply leads to higher prices. In fact, expansion of the money supply does not always cause inflation.
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1. The amount of high-powered money, which is also called reserve money.
2. Cash reserve ratio of banks (i. e., ratio of currency reserves to deposits of the banks)
This cash reserve ratio of banks determines the magnitude of deposit multiplier.
3. Currency-deposit ratio of the public.
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