When the Fed increases the money supply, interest rates:
A) rise.
B) fall.
C) are unaffected.
D) rise and then fall.
E) fall and then rise.

Question

Quizplus · Accepted Answer

When the Fed increases the money supply, this means that there is more money circulating in the economy, which can lead to an increase in demand for loans. In turn, this increased demand for loans can push interest rates down as lenders compete for borrowers. Therefore, interest rates are more likely to fall when the Fed increases the money supply.

When the Fed Increases the Money Supply, Interest Rates