The direct effect of an increase in the money supply is

Question

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An increase in the money supply leads to people spending more money, causing aggregate demand to shift to the right and leading to an increase in economic activity. This happens because an increase in the money supply leads to lower interest rates, making it more attractive for firms to invest and people to borrow, thereby driving up consumption and investment spending. The increase in spending ultimately leads to higher output and prices, which, in turn, lead to an increase in economic activity.

The Direct Effect of an Increase in the Money Supply