When the Fed unexpectedly increases the money supply,it will cause an increase in aggregate demand because
A)real interest rates will fall,stimulating business investment and consumer purchases.
B)the dollar will appreciate on the foreign exchange market,leading to a decrease in net exports.
C)lower interest rates will tend to decrease asset prices (such as the prices of homes),which decreases wealth and thereby decreases current consumption.
D)all of the above are true.

Question

Quizplus · Accepted Answer

When the Fed unexpectedly increases the money supply, it leads to lower interest rates, which encourages borrowing and spending by businesses and consumers. This results in an increase in aggregate demand, as businesses invest more and consumers make more purchases. Additionally, lower interest rates tend to increase the value of housing, stocks, and other assets, which creates a wealth effect, leading to increased consumption. The appreciation of the dollar and a decrease in net exports are not likely to be immediate effects of an increase in the money supply.

When the Fed Unexpectedly Increases the Money Supply,it Will Cause