What will an increase in the money supply tend to do?Multiple ChoiceIncrease interest rates and increase the equilibrium GDP.Lower interest rates and increase the equilibrium GDP.Interest rate and equilibrium GDP does not change.Lower interest rates and lower the equilibrium GDP.Increase interest rates and lower the equilibrium GDP.
Question
What will an increase in the money supply tend to do?Multiple ChoiceIncrease interest rates and increase the equilibrium GDP.Lower interest rates and increase the equilibrium GDP.Interest rate and equilibrium GDP does not change.Lower interest rates and lower the equilibrium GDP.Increase interest rates and lower the equilibrium GDP.
Solution
The correct answer is: Lower interest rates and increase the equilibrium GDP.
Here's why:
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When the money supply increases, there is more money available in the economy.
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This increase in money supply leads to a decrease in interest rates because banks have more money to lend, and they can afford to charge lower interest rates to attract borrowers.
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Lower interest rates encourage businesses and individuals to borrow more. This borrowed money is often used for investment or spending.
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Increased investment and spending stimulate economic activity, leading to an increase in the Gross Domestic Product (GDP), which is the total value of all goods and services produced in the economy.
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Therefore, an increase in the money supply tends to lower interest rates and increase the equilibrium GDP.
Similar Questions
An increase in the money supply will do which of the following?Multiple select question.Lower aggregate demand.Lower equilibrium GDP.Increase investment.Lower the interest rate.
Under expansionary monetary supply,a.the economy’s money supply is increased by reducing interest rates,b.the economy’s money supply is reduced by reducing interest rates,c.the economy’s money supply is reduced by increasing interest rates,d.the economy’s money supply is increased by increasing interest rates,
The impact of changes in money supply on the economy can be seen through:Question 23Answera.Interest rates, inflation, and economic activityb.Government spending and taxationc.Changes in the labor marketd.International trade and exchange rates
If there is an increase in the nation’s money supply, the interest rate willmultiple choicerise, investment spending will fall, aggregate demand will shift right, real GDP will fall, and the price level will rise.fall, investment spending will rise, aggregate demand will shift right, and real GDP and the price level will rise.fall, investment spending will rise, aggregate demand will shift right, real GDP will rise, and the price level will fall.rise, investment spending will fall, aggregate demand will shift right, real GDP will rise, and the price level will fall.
In the long run, an increase in the money supply will lead toResponsesA a decrease in velocity. a decrease in velocity.B an increase in velocity.an increase in velocity.C a decrease in real GDP.a decrease in real GDP.D an increase in real GDP.
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