The most likely impact of an unanticipated increase in the money supply is
A) an increase in the real interest rate, which in turn stimulates investment and GDP.
B) a decrease in the real 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) an improvement in technology, which will stimulate both output and employment.

Question

Quizplus · Accepted Answer

An unanticipated increase in the money supply will lead to a decrease in the real interest rate. This is because as more money enters the economy, lenders will have more money to lend, thus driving down the interest rate in order to attract borrowers. This decrease in the real interest rate will stimulate investment and consumption, leading to an increase in GDP.

The Most Likely Impact of an Unanticipated Increase in the Money