Exhibit 20-6 Money, investment and product markets

-In Exhibit 20-6,an increase in the money supply from MS₁ to MS₂ causes:

Question

Exhibit 20-6 Money, investment and product markets
 
-In Exhibit 20-6,an increase in the money supply from MS₁ to MS₂ causes:

Quizplus · Accepted Answer

An increase in the money supply is represented by the shift from MS₁ to MS₂. This shift causes interest rates to fall from i₁ to i₂, as there is now more money available to borrow and lenders must lower interest rates to entice borrowers. The lower interest rates will increase the quantity demanded of investment from i₁ to i₂, as borrowing becomes cheaper and more attractive to investors. Therefore, the correct choice is C.

Exhibit 20-6 Money, Investment and Product Markets