When the Fed decides to enact expansionary monetary policy, the supply of loanable funds:
A) increases, while the demand for loanable funds decreases.
B) decreases, while the demand for loanable funds increases.
C) and the demand for loanable funds both decrease.
D) and the demand for loanable funds both increase.

Question

Quizplus · Accepted Answer

Expansionary monetary policy involves increasing the money supply, which lowers interest rates and increases the supply of loanable funds. This makes borrowing cheaper and more attractive, increasing investment and consumption, ultimately stimulating economic growth. The increase in supply of loanable funds leads to a decrease in the interest rates, thereby reducing the demand for loanable funds.

When the Fed Decides to Enact Expansionary Monetary Policy, the Supply