Question

reducing the money supply stimulates the economy.

True
False.

Answer 1

Answer is (False).

Explanation;

Reducing the money supply will not stimulate the economy because reduction in money supply is done for controlling inflation but it negatively affect economic actvities of the economy. Due to lower supply of the money in the economy, there will be less amount of money in the hands of consumers hence it will lead to low demands so as a result overall demand will fall. Thus reducing the money supply does not stimulate the economy. So given statement is false.