The "indirect effect" of an increase in the money supply is to

Question

Quizplus · Accepted Answer

An increase in the money supply leads to a decrease in interest rates, as people have more money to lend and the demand for borrowing decreases, leading to an increase in investment spending. This increase in investment spending leads to an increase in aggregate demand, which is the indirect effect of an increase in the money supply. Therefore, option B is the correct choice. Options A, C, and D are incorrect because an increase in the money supply does not lead to an increase in aggregate supply or decrease in the price level.

The "Indirect Effect" of an Increase in the Money Supply