The impact of an increase in the money supply is a(n):
A) increase in the interest rate, which in turn stimulates investment and GDP.
B) decrease in the interest rate, which in turn stimulates investment and GDP.
C) a reduction in the general level of prices, which will increase the disposable income of households.
D) improvement in technology, which will stimulate both output and employment.

Question

Quizplus · Accepted Answer

An increase in the money supply will lead to a decrease in the interest rate, which in turn stimulates investment and ultimately leads to an increase in GDP. This is because lower interest rates make it cheaper for businesses and households to borrow money, enabling them to spend more and increase their level of activity.

The Impact of an Increase in the Money Supply Is