What is the impact of increasing the money supply through M2 measures?

Increasing the money supply through M2 measures, which include cash, checking deposits, and easily convertible near money, generally aims to enhance liquidity in the economy. When the money supply increases, it makes more funds available for banks to lend, potentially lowering interest rates. Lower interest rates encourage borrowing and investing by businesses and consumers, which can stimulate economic activity.

As businesses expand and consumers spend more, there can be a positive effect on overall economic growth. This increased spending can lead to higher demand for goods and services, driving production and potentially increasing employment.

While increases in the money supply can sometimes lead to inflation if not managed properly, in scenarios where economic growth is sluggish, the additional money can promote activity without immediate inflationary pressures. Thus, option B accurately reflects the typical impact of an increased M2 money supply on economic growth.