Using the liquidity-preference model,when the Federal Reserve increases the money supply,
A)the equilibrium interest rate decreases.
B)the aggregate-demand curve shifts to the left.
C)the quantity of goods and services demanded is unchanged for a given price level.
D)the short-run aggregate-supply curve shifts to the right.

Question

Using the liquidity-preference model,when the Federal Reserve increases the money supply,
A)​the equilibrium interest rate decreases.
B)​the aggregate-demand curve shifts to the left.
C)​the quantity of goods and services demanded is unchanged for a given price level.
D)​the short-run aggregate-supply curve shifts to the right.

Quizplus · Accepted Answer

According to the liquidity-preference model, an increase in the money supply leads to a decrease in the equilibrium interest rate. This is because an increase in the money supply lowers the demand for money, which in turn lowers the interest rate needed to encourage borrowing and investment. Therefore, the correct choice is A.

Using the Liquidity-Preference Model,when the Federal Reserve Increases the Money