An increase in the money supply will tend to:
A)lower interest rates and lower the equilibrium GDP.
B)lower interest rates and increase the equilibrium GDP.
C)increase interest rates and increase the equilibrium GDP.
D)increase interest rates and lower the equilibrium GDP.

Question

Quizplus · Accepted Answer

An increase in the money supply will lead to lower interest rates as it increases the supply of loanable funds in the market. Lower interest rates encourage more borrowing and investment, which in turn increases aggregate demand and the equilibrium GDP.

An Increase in the Money Supply Will Tend To