Other things the same, if the Fed increases the money supply, the interest rate rises so...

Other things the same, if the Fed increases the money supply, the interest rate

rises so aggregate demand shifts right.
		rises so aggregate demand shifts left.
		falls so aggregate demand shifts right.
		falls so aggregate demand shifts left.

Solutions

Expert Solution

Falls so aggregate demand shifts right.

Explanation: When the money supply increases, the money supply curve shifts right. So, the money supply curve intersects the money demand curve towards the right and at a lower point. Therefore, the interest rate falls.

When the interest rate falls, consumers can avail more credit and spend more. So, aggregate demand increases.

Rahul Sunny answered 1 year ago

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