In the short run, ceteris paribus, an expanded money supply leads to:
A) a higher nominal interest rate.
B) no change in the nominal interest rate.
C) a lower nominal interest rate.
D) an increase in the exchange rate.

Question

Quizplus · Accepted Answer

An expanded money supply leads to lower nominal interest rates in the short run because the increased supply of money reduces the cost of borrowing, which decreases the demand for loans and lowers interest rates.

In the Short Run, Ceteris Paribus, an Expanded Money Supply