Figure 34-4 -2Refer to Figure 34-4. Suppose the current equilibrium interest rate is r₂. If the Federal Reserve increases the money supply, and the price level does not change, A)there will be an increase in the equilibrium quantity of goods and services demanded. B)there will be a decrease in the equilibrium quantity of goods and services demanded. C)there will be an increase in the equilibrium interest rate. D)fewer firms will choose to borrow to build new factories and buy new equipment.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the money supply and the price level remains constant, the interest rate typically decreases. This lower interest rate reduces the cost of borrowing, encouraging more investment and consumption, which in turn increases the equilibrium quantity of goods and services demanded.

Figure 34-4 ​

Figure 34-4