This will increase the volume of discount loans, which are only supposed to be used to cover temporary reserve deficiencies. As DL increases, so does the money supply. Some students said that discount loans were taken out and invested, but banks are not supposed to profit from these loans. High Ms growth when Y is also high might further increase inflationary pressure. See the text.
Inflation affects all three functions of money.
High inflation hampers all three functions of money. This is rather obvious. Money loses value as inflation erodes its purchasing power. Suppose that prices are 'sticky,' that there are 'menu costs,' or that that there is asymmetric information between firms. Shopping around has a very high opportunity cost.