An increase in the money supply
A) lowers the interest rate, causing a decrease in investment and an increase in GDP.
B) lowers the interest rate, causing an increase in investment and a decrease in GDP.
C) lowers the interest rate, causing an increase in investment and an increase in GDP.
D) raises the interest rate, causing an increase in investment and an increase in GDP.
E) raises the interest rate, causing a decrease in investment and a decrease in GDP.

Question

Quizplus · Accepted Answer

When the money supply is increased, interest rates decrease, making it less expensive for firms to borrow money, leading to an increase in investment. This increase in investment results in an increase in GDP. Therefore, choice C is the best answer.

An Increase in the Money Supply