Of the four effects on interest rates from an increase in the money supply,the one that works in the opposite direction of the other three is the
A)liquidity effect.
B)income effect.
C)price level effect.
D)expected inflation effect.

Question

Quizplus · Accepted Answer

The liquidity effect of an increase in the money supply tends to lower interest rates because more money available means cheaper borrowing costs. This effect works in the opposite direction of the income effect, price level effect, and expected inflation effect, which all tend to increase interest rates due to higher demand for goods, higher prices, and expectations of future inflation, respectively.

Of the Four Effects on Interest Rates from an Increase