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What happens when too much money is put into circulation?
AMoney becomes harder to divide for small payments
BPrices increase and inflation rises in the economy
CMoney loses its usefulness as a means of exchange
DSavers earn a higher return on their bank deposits
Answer & Solution
Correct answer: B. Prices increase and inflation rises in the economy
1. Money has to be scarce enough to hold value.
2. Too much money in circulation increases prices and inflation.
3. That is why governments control scarcity by limiting the quantity of money in circulation.
4. Extra money does not change how finely a note can be split, so divisibility is untouched by the quantity issued.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.1 Show Me the Money_
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