An increase in the money supply:
A)increases income and lowers the interest rate in both the short run and in the long run.
B)increases income in both the short run and in the long run but leaves the interest rate unchanged in the long run.
C)lowers the interest rate in both the short run and in the long run but leaves income unchanged in the long run.
D)lowers the interest rate and increases income in the short run but leaves both unchanged in the long run.

Question

Quizplus · Accepted Answer

In the short run, an increase in the money supply lowers interest rates and increases income due to higher spending and investment. In the long run, prices adjust, and the effects on real income and interest rates dissipate, leaving them unchanged.

An Increase in the Money Supply