Assume that the Federal Reserve increases the money supply.This will cause ____________.
I.interest rates to decrease
II.consumption and investment to decrease
III.inflation to fall

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the money supply, it becomes easier for people to borrow money. This increased demand for borrowing pushes down interest rates. However, an increase in the money supply can lead to inflation over time, so III is incorrect. The increase in the money supply can stimulate consumption and investment, not decrease it, so II is also incorrect.

Assume That the Federal Reserve Increases the Money Supply