An increase in the supply of money with no change in demand will lead to a(n) _____ in the equilibrium quantity of money and a _____ in the equilibrium interest rate.
A) increase; rise
B) increase; fall
C) decrease; rise
D) decrease; fall

Question

Quizplus · Accepted Answer

With an increase in the supply of money and no change in demand, the quantity of money available will increase, leading to a decrease in the interest rate in order to entice borrowers to take advantage of the increased money supply. As interest rates fall, people are encouraged to take out more loans, causing an increase in the equilibrium quantity of money.

An Increase in the Supply of Money with No Change