When the money market is depicted in a diagram with the value of money on the vertical axis, which statement best describes the effects of an increase in money supply?
A) The equilibrium value and equilibrium quantity of money both increase.
B) The equilibrium value and equilibrium quantity of money both decrease.
C) The equilibrium value increases, while the equilibrium quantity of money decreases.
D) The equilibrium value decreases, while the equilibrium quantity of money increases.

Question

Quizplus · Accepted Answer

An increase in money supply will cause the supply curve to shift to the right, resulting in a lower equilibrium value of money and a higher equilibrium quantity of money. Therefore, the correct option is D, i.e., the equilibrium value decreases, while the equilibrium quantity of money increases.

When the Money Market Is Depicted in a Diagram with the Value