To identify which of the given options would lead to a strong and healthy economy, let’s analyze each one:
A. A decrease in the money supply increases interest rates, which increases lending.
- A decrease in the money supply typically leads to higher interest rates, which generally dampens lending rather than increasing it. This scenario is not conducive to a healthy economy.
B. An increase in the money supply increases interest rates and inflation, which spurs economic growth.
- An increase in the money supply can lead to lower interest rates, which encourages borrowing and spending. However, if it leads to higher inflation without corresponding economic growth, it can harm the economy. Therefore, this scenario is not particularly favorable.
C. An increase in the money supply and decrease in interest rates result in more lending and risk.
- This scenario is positive for economic growth. An increase in the money supply typically lowers interest rates, making borrowing cheaper, which can lead to more lending and increased consumer and business spending—factors that generally contribute to economic growth. The mention of increased risk indicates the potential for speculative behavior, but the overall effect on economic growth can be positive.
D. A short-term profit and decrease in the money supply cause a decrease in interest rates and increased lending.
- A decrease in the money supply usually leads to higher, not lower, interest rates, which would not promote increased lending. This scenario contradicts the relationships typically observed in economics.
Based on this analysis, option C (An increase in the money supply and decrease in interest rates result in more lending and risk) is the most likely result that would lead to a strong and healthy economy. This scenario promotes lending and consumer spending, which are key drivers of economic growth.
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