Question

True or False

A capital inflow into a country will always increase its money supply

Answer 1

It can be mentioned that the given statement is false and this is because of the fact that when there is a capital inflow into the country it is considered actually as a type of investment where the foreign currency is exchanged for United States dollars which is already in circulation where you increase the Foreign Exchange Reserves in the form of Japanese Yen, but there is no net increase in the money supply in the whole and that is the reason why you have to understand the fact that

(b) False is the answer to this question