If an increase in the money supply causes people to buy more financial assets,

Question

Quizplus · Accepted Answer

When the money supply increases, people have more cash in their hands to spend on financial assets like stocks, bonds, and other securities. This demand for financial assets increases their prices, leading to a fall in interest rates in the short run. This, in turn, can lead to an increase in spending on plant and equipment as businesses can borrow at lower rates to invest in capital goods. Therefore, the correct choice is C.

If an Increase in the Money Supply Causes People to Buy