What will be the impact of unlimited money supply?

Based on the quantity theory of money, what would be the impact of increasing the money supply by 25 percent?

• Answer:

  You would see inflation, where each unit of money would be worth roughly 25% less. Think of it like this: If you have $100 you can buy 10 widgets at $10 each. If all things are held constant, and the amount of money is increased 25% your $100 would become $125. But since the value of the widget and it's marginal utility would not change with your increased money, you would still be able to buy 10 widgets, now at a cost of $12.50 each. Therefore, each dollar would be worth slightly less since you need more of them to buy the same amount of widgets. This example isn't perfect because it uses an individual to model an entire economy, but the basic principle of increased money supply is applicable to the question you ask.