Which of the following would provide the most accurate description of events when monetary authorities increase the size of chartered banks' excess reserves?
A)A fall in interest rates decreases the money supply, causing an increase in investment spending, output, and employment.
B)A rise in interest rates increases the money supply, causing a decrease in investment spending, output, and employment.
C)The money supply is decreased, which increases the interest rate, and causes investment spending, output, and employment to decrease.
D)The money supply is increased, which decreases the interest rate, and causes investment spending, output, and employment to increase.

Question

Quizplus · Accepted Answer

When monetary authorities increase the size of chartered banks' excess reserves, the money supply increases, causing a decrease in the interest rate. This decrease in interest rates leads to an increase in investment spending, output, and employment. Therefore, option D is the most accurate description of events.

Which of the Following Would Provide the Most Accurate Description