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UI Post-UTME Economics 2025 (Model questions) Question 3

Question 3

Money and Inflation

An increase in the money supply, all else equal, will most likely lead to:
I. Higher inflation in the long run
II. Depreciation of the currency
III. Higher interest rates immediately
IV. Increased purchasing power of money

  1. A.I and II only
  2. B.III and IV only
  3. C.I, II and III only
  4. D.II and IV only
Show the answer and explanation

Answer: A (I and II only)

Explanation

More money chasing the same goods raises prices and weakens the currency. Extra money tends to lower interest rates and reduces the purchasing power of money.