Exhibit 20-6 Money, investment and product markets In Exhibit 20-6, an increase in the money supply from MS₁ to MS₂ causes:

Question

Quizplus · Accepted Answer

An increase in the money supply causes a decrease in interest rates, which in turn leads to an increase in the quantity demanded of investment. This is shown by the movement from I₁ to I₂ in the investment demand graph. There is no effect on aggregate demand, as that is determined by factors such as consumption, government spending, and net exports. Therefore, options B and E are incorrect. Option D is also incorrect, as it suggests that an increase in interest rates would not affect the quantity demanded of investment, which is contrary to economic theory.

Exhibit 20-6 Money, Investment and Product Markets in Exhibit 20-6