In the short run, when the Fed increases the quantity of money
A) the supply of money curve shifts leftward.
B) bond prices rise and the interest rate falls.
C) bond prices fall and the interest rate rises.
D) the demand for money increases.

Question

Quizplus · Accepted Answer

When the Fed increases the quantity of money, it injects more money into the economy. This leads to an increase in the supply of money, shifting the money supply curve to the right. As a result, the demand for bonds also increases, leading to an increase in bond prices and a decrease in interest rates. This is because the increased supply of money makes it easier for individuals and firms to obtain loans, thus increasing the demand for bonds and driving up their prices.

In the Short Run, When the Fed Increases the Quantity