Question : If money supply growth is faster than real Gross Domestic Product (GDP) growth, it results in _______.
Option 1: inflation
Option 2: deflation
Option 3: budget surplus
Option 4: budget deficit
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Correct Answer: inflation
Solution : The correct option is inflation .
When the growth of money supply outpaces the growth of real Gross Domestic Product (GDP), it can lead to inflation. This happens when there's more money circulating but not enough increase in actual goods and services production. It creates a situation where more money is competing for the same amount of goods causing prices to rise.
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