In the short run, what effect does an increase in the money supply have on interest rates and aggregate demand?
A) It causes interest rates to increase and aggregate demand to shift right.
B) It causes interest rates to increase and aggregate demand to shift left.
C) It causes interest rates to decrease and aggregate demand to shift right.
D) It causes interest rates to decrease and aggregate demand to shift left.

Question

Quizplus · Accepted Answer

An increase in the money supply typically leads to lower interest rates because more funds are available for borrowing. Lower interest rates make borrowing cheaper, encouraging investment and consumption, which shifts the aggregate demand curve to the right.

In the Short Run, What Effect Does an Increase in the Money