If there is an increase in the money supply, in the short run

Question

Quizplus · Accepted Answer

An increase in the money supply leads to a decrease in interest rates due to the increased supply of loanable funds. This leads to increased borrowing by consumers and firms, which ultimately leads to increased spending. However, it takes several months for this increase in spending to fully respond to the change in interest rates. Therefore, the correct answer is D - the interest falls and it takes several months for spending to fully respond to this change.

If There Is an Increase in the Money Supply, in the Short