If the Fed's objective is to stimulate the economy,which of the following gives the correct sequence of events?
A)The money supply increases,interest rates decrease,investment increases,and AD increases.
B)The money supply increases,interest rates decrease,investment increases,and AS decreases.
C)The money supply decreases,interest rates increase,investment decreases,and AD decreases.
D)The money supply decreases,interest rates increase,investment increases,and AD increases.

Question

Quizplus · Accepted Answer

When the Fed increases the money supply, it puts more money into circulation, which lowers interest rates. As interest rates fall, investment spending by businesses and consumers increases, which leads to an increase in aggregate demand (AD) for goods and services. So, the correct sequence of events is an increase in the money supply leads to lowered interest rates, which increases investment spending, resulting in an increase in aggregate demand.

If the Fed's Objective Is to Stimulate the Economy,which of the Following