If the supply of money were to increase significantly, what would happen to the value of money?

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gsenviro | College Teacher | (Level 1) Educator Emeritus

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If the supply of money were to increase significantly, the value of money would decrease. More specifically, if the supply of money increases faster than the supply of goods and services, then overall prices rise. This is the situation of inflation, in other words, money's value falls. In simpler terms, due to inflation, the same amount of money buys fewer goods and services. For example, a 10% inflation means one has to pay $110 for something that would have cost only $100 a year ago. That is, in one year, the value of money fell by 10%. Inflation is useful to governments, since their debt burden falls. The same is the case with individuals who have debts. Thus, a significant increase in the money supply is a reason for inflation, which reduces the value of money.

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