An unexpected increase in the supply of money will
A) reduce the real rate of interest and, thereby, trigger an increase in current spending by households and businesses.
B) reduce aggregate demand and real output in the short run.
C) increase only the general level of prices in the short run.
D) lead to a higher rate of unemployment in the short run.

Question

Quizplus · Accepted Answer

An unexpected increase in the money supply typically lowers interest rates, encouraging more borrowing and spending by households and businesses, thus increasing aggregate demand and output in the short run.

An Unexpected Increase in the Supply of Money Will