-In Figure 15.4,an increase in the money supply from $100 billion to $135 billion will cause a

Question

Quizplus · Accepted Answer

An increase in the money supply leads to a decrease in the interest rate (as shown in the downward slope of the money demand curve). This decrease in the interest rate will encourage more borrowing and investment, leading to an increase in investment. However, the decrease in interest rates will also lead to an increase in consumption and exports, and therefore an increase in aggregate demand, making Option A incorrect. Option C is also incorrect as an increase in the money supply will typically lead to an increase in aggregate demand, not a decrease.