If the Fed increases the money supply,then
A)the interest rate declines and the quantity of money demanded increases
B)the interest rate declines and the quantity of money demanded declines
C)the interest rate increases and the quantity of money demanded increases
D)the interest rate increases and the quantity of money demanded declines
E)nothing happens to the quantity of money demanded

Question

Quizplus · Accepted Answer

When the Fed increases the money supply, there is more money available in the economy, which leads to a decrease in the interest rate. This, in turn, leads to an increase in the quantity of money demanded as borrowing becomes less expensive. Therefore, choice A is the correct answer.

If the Fed Increases the Money Supply,then