Of the four effects on interest rates from an increase in the money supply,the initial effect is,generally,the
A)income effect.
B)liquidity effect.
C)price level effect.
D)expected inflation effect.

Question

Quizplus · Accepted Answer

The initial effect of an increase in the money supply is the liquidity effect. This refers to the increase in the supply of money that leads to a fall in interest rates due to an excess supply of money. The income effect refers to the increase in income that occurs as a result of changes in interest rates, the price level effect refers to the impact of changes in the general price level on interest rates, and the expected inflation effect refers to the impact of changes in inflation expectations on interest rates. However, these effects typically occur after the initial liquidity effect has taken place.

Of the Four Effects on Interest Rates from an Increase