Starting from equilibrium in the money market, suppose the money supply increases. Other things being equal, this will cause an excess supply of money, leading people to buy bonds.

Question

Quizplus · Accepted Answer

An increase in the money supply will shift the supply curve to the right, creating an excess supply of money at the original interest rate. This will lead investors to buy more bonds, causing bond prices to rise and interest rates to fall until a new equilibrium is reached.

Starting from Equilibrium in the Money Market, Suppose the Money