If money supply and money demand both increased:
A) nominal interest rates would increase and investment would increase.
B) niminal interest rates would increase and investment would decrease.
C) niminal interest rates would decrease and investment would increase.
D) the change in nominal interest rates and investment would be indeterminate.

Question

Quizplus · Accepted Answer

The change in nominal interest rates and investment would be indeterminate because an increase in both money supply and money demand can influence interest rates and investment in conflicting ways. An increase in money supply typically lowers interest rates, while an increase in money demand tends to raise interest rates. The net effect on investment is also unclear, as it depends on factors such as the availability of credit and investor confidence. Therefore, it is difficult to predict how changes in both money supply and money demand will affect nominal interest rates and investment.

If Money Supply and Money Demand Both Increased