-Refer to Figure 14-6.Suppose the Fed increases the money supply (to $\left. \mathrm { M } _ { 2 } ^ { \mathrm { S } } \right)$ ).As a result,the interest rate falls initially to 6 percent.After spending and GDP change,what will happen to the interest rate?

Question

Quizplus · Accepted Answer

When the Fed increases the money supply, the interest rate initially falls. However, as spending and GDP increase, the demand for money also increases, causing the money demand curve to shift to the right, which leads to a rise in the interest rate.

-Refer to Figure 14-6 M2S)\left. \mathrm { M } _ { 2 } ^ { \mathrm { S } } \right)M2S​)

-Refer to Figure 14-6 $\left. \mathrm { M } _ { 2 } ^ { \mathrm { S } } \right)$