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In: Economics

An increase in the money supply


10. Chapter mank07t, Section .255, Problem 004 

An increase in the money supply

 A. raises interest rates and shifts aggregate demand to the right

 B. reduces interest rates and shifts aggregate demand to the right

 C. reduces interest rates and shifts aggregate supply to the right

 D. raises interest rates and shifts aggregate supply to the right.

Solutions

Expert Solution

Answer - reduce interest rates and shifts aggregate demand curve to the right.

Reason -

An increase in money supply reduces the interest rates as people will have money and they will need to borrow lesser amount of money from banks. Moreover increased money supply will make people to spend more even at same price and the aggregate demand curve will shift right.

Rahul Sunny answered 2 years ago
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