Assume that the Reserve Bank increases the money supply. This will cause ________.
I. interest rates to decrease
II. consumption and investment to decrease
III. inflation to fall

Question

Quizplus · Accepted Answer

When the Reserve Bank increases the money supply, it will lead to an increase in liquidity in the economy, which will result in a decrease in interest rates. However, this increase in money supply may also lead to an increase in consumption and investment, which would cause inflation to increase rather than decrease. Therefore, III cannot be a correct answer.

Assume That the Reserve Bank Increases the Money Supply