If the Federal reserve increases the supply of money: A. there will be an increase in...
If the Federal reserve increases the supply of money: A. there will be an increase in government spending. B. there will be a decrease in aggregate demand. C. there will be no effect on aggregate demand. D. there will be a decrease in interest rates. E. there will be an increase in interest rates.
Homework Answers
Answer: there will be a decrease in interest rate.
Equilibrium interest rate is determined at a point where money demand equals money supply. When money supply is increased, MS curve shifts outward. Since, supply of money is greater than its demand, the interest rate falls to bring the economy in equilibrium. As a result, demand for money increases as much the supply increased.
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If the Federal reserve increases the supply of money: A. there
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