Suppose the market for money, drawn with the value of money on the vertical axis and the quantity of money on the horizontal axis, is in equilibrium. If the money supply increases, then at the old value of money there is an
A)excess demand for money that will result in an increase in spending.
B)excess demand for money that will result in a decrease in spending.
C)excess supply of money that will result in an increase in spending.
D)excess supply of money that will result in a decrease in spending.

Question

Quizplus · Accepted Answer

When the money supply increases, at the old value of money, there is more money available than people want to hold, leading to an excess supply of money. This excess supply typically results in an increase in spending as people try to exchange their excess money for goods and services.

Suppose the Market for Money, Drawn with the Value of Money