Use the following to answer questions .
Exhibit: Changes in the Money Supply
-(Exhibit: Changes in the Money Supply) Following the increase in money supply, at the original interest rate of 6%, there is

Question

Use the following to answer questions .
Exhibit: Changes in the Money Supply 
-(Exhibit: Changes in the Money Supply) Following the increase in money supply, at the original interest rate of 6%, there is

Quizplus · Accepted Answer

An increase in the money supply at the original interest rate of 6% will lead to an excess supply of money as individuals and firms will hold more money than they want to at the current interest rate. This will put downward pressure on the interest rate as individuals and firms try to lend out the excess money. Therefore, the best choice is B, an excess supply of money.

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