In the chain of cause and effect between changes in the excess reserves of commercial banks and the resulting changes in output and employment in the economy:
A) a decrease in aggregate demand will increase output and employment.
B) a decrease in the rate of interest will decrease aggregate demand.
C) an increase in the money supply will decrease the rate of interest.
D) an increase in excess reserves will decrease the money supply.

Question

Quizplus · Accepted Answer

An increase in the money supply typically leads to a decrease in the rate of interest, as more money is available for lending, which tends to lower borrowing costs.

In the Chain of Cause and Effect Between Changes in the Excess