An increase in the money supply will tend to raise stock prices and
A)reduce spending by consumers as they attempt to save in order to have the funds to buy more stock.
B)increase spending by consumers as their wealth increases.
C)decrease spending by firms as they cut back on buying new plant and equipment.
D)decrease spending by firms as they cut back on inventory holdings.

Question

Quizplus · Accepted Answer

An increase in the money supply causes an increase in the amount of money available to consumers, which can lead to an increase in spending on goods and services, including stocks. As the demand for stocks increases, stock prices tend to rise. Therefore, an increase in the money supply will tend to raise stock prices and increase spending by consumers, as their wealth increases.

An Increase in the Money Supply Will Tend to Raise