When an increase in the money supply reduces the interest rate,investment and nominal GDP increase.

Question

Quizplus · Accepted Answer

When the central bank increases the money supply, the interest rate tends to decrease due to the surplus of funds in the market. As a result, it becomes cheaper for businesses to borrow money to make investments, leading to an increase in investment spending. This increase in investment spending, along with the increased supply of money available for spending, drives up nominal GDP.

When an Increase in the Money Supply Reduces the Interest