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

Question

Quizplus · Accepted Answer

When the money supply increases, the interest rate falls due to the increased availability of funds. As a result, investment spending increases, which leads to an increase in aggregate demand and a rise in GDP.

An Increase in the Money Supply