Exhibit 20-6 Money, investment and product markets

In Exhibit 20-6, an increase in the money supply from MS₁ to MS₂ causes:

Question

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

Quizplus · Accepted Answer

An increase in the money supply will lead to a decrease in interest rates (from i₁ to i₂) and an increase in the quantity demanded of investment (from I₁ to I₂). This is because lower interest rates make borrowing cheaper and encourage firms to invest more in new projects. The increase in investment will cause a shift in aggregate demand, but that is not the direct result of the increase in the money supply.

Exhibit 20-6 Money, Investment and Product Markets