Economists have theorized that when the supply of money experiences a rapid increase, there is an inevitable increase in the rate of inflation. Money supply plays a powerful role in a country’s economy and has a strong impact on the economic activities. When there is an increase in the money supply, it stimulates more spending and urges consumers to spend more. This is because, increase in the supply of money lands more money in the consumer’s hands. This gives a ‘wealthy’ feeling to them and stimulates their minds to raise their expenditure.

At the same time, the prices of the commodities rise. There are fair chances of increase in price if the supply of production does not commensurate with the increase of money supply. If the supply of the products is sufficient or more, then there is an increase in the supply of money. Due to excessive or increased supply of money which does not synchronize with the production, the total economic condition of the country is affected. During such a situation, the respective government will have to take certain economic measures to control the demand and supply of money so as to bring stability in the economic scenario of the country.

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