FIGURE 27-3
-Refer to Figure 27-3. The increase in the money supply from MS0 to MS1 shifts the monetary equilibrium from E0 to E1. The result is

Question

Quizplus · Accepted Answer

When the money supply increases, the interest rate decreases and this leads to an increase in desired investment. This causes a shift in the monetary equilibrium from E0 to E1. Therefore, option A, i.e., a decrease in the interest rate and an increase in desired investment is the correct answer. Options B, C, D, and E are incorrect because they do not correctly describe the effects of an increase in the money supply on the monetary equilibrium.

FIGURE 27-3 -Refer to Figure 27-3. the Increase in the Money Supply