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3) When would money supply don’t cause immediate inflation in a country?

3) When would money supply don’t cause immediate inflation in a country?

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Answer #1

Money supply when increases faster then growth in real output will cause inflation.but it might be possible that increases in the money supply can cause inflation in some cases.

If there will be same growth of real output as well as money supply then price level would be unaffected.if there will be hard to measure money supply.some time it is due to velocity of circulation.its also happens due to liquidity trap .in liquidity trap interest rates fall to zero but that doesn't prevent people saving.in that case there is fall in the velocity of circulation and this will lead to deflation.

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