An increase in the money supply:
A) increases income and lowers the interest rate in both the short and long runs.
B) increases income in both the short and long runs, but leaves the interest rate unchanged in the long run.
C) lowers the interest rate in both the short and long runs, but leaves income unchanged in the long run.
D) lowers the interest rate and increases income in the short run, but leaves both unchanged in the long run.

Question

Quizplus · Accepted Answer

An increase in the money supply typically lowers the interest rate and increases income in the short run due to higher spending and investment. However, in the long run, the economy adjusts, and these effects can dissipate, leaving both income and interest rates unchanged as prices adjust.

An Increase in the Money Supply