An increase in government expenditure is financed by borrowing from the central bank.
Other things being equal, what will be the effect on the money supply?
A It will decrease.
B It will increase by an amount equal to the increase in government expenditure.
C It will increase by more than the increase in government expenditure.
D It will remain unchanged.

Q: What topic does this question test?

This question tests Money and Banking in A-Level Economics (syllabus code 9708). It is worth 1 mark.

Q: Which exam paper is this question from?

This question appeared in the Cambridge A-Level Economics May/June 2017 examination, Paper 3 Variant 1 (9708_s17_qp_31.pdf).

Question

An increase in government expenditure is financed by borrowing from the central bank.
Other things being equal, what will be the effect on the money supply?
A It will decrease.
B It will increase by an amount equal to the increase in government expenditure.
C It will increase by more than the increase in government expenditure.
D It will remain unchanged.

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