Asked by Blukey McDowall on May 21, 2024
Verified
An increase in the money supply will tend to
A) lower interest rates and lower the equilibrium GDP.
B) lower interest rates and increase the equilibrium GDP.
C) increase interest rates and increase the equilibrium GDP.
D) increase interest rates and lower the equilibrium GDP.
E) None of these will happen if the money supply increases.
Money Supply
The aggregate monetary value within an economy, including cash, coins, and all balances in checking and savings accounts, at a given moment.
Interest Rates
The cost of borrowing money or the reward for saving, typically expressed as a percentage of the principal.
Equilibrium GDP
The level of Gross Domestic Product where the total output of an economy equals the total demand.
- Acquire knowledge about the effect of monetary policy on the state of the economy.
- Ascertain the linkage between the fluctuations in bond prices, variations in interest rates, and the implementation of monetary policy.
Verified Answer
AT
Ahmed TeiceMay 23, 2024
Final Answer :
B
Explanation :
An increase in the money supply will lead to a decrease in interest rates due to an increase in the supply of loanable funds. Lower interest rates will in turn stimulate investment and consumption expenditures, leading to an increase in the equilibrium GDP. Therefore, choice B is the correct answer. Choices A, C, and D are incorrect. Choice E is also incorrect as there will be an impact on the economy when the money supply increases.
Learning Objectives
- Acquire knowledge about the effect of monetary policy on the state of the economy.
- Ascertain the linkage between the fluctuations in bond prices, variations in interest rates, and the implementation of monetary policy.