If the Fed increases the quantity of money in circulation, interest rates _____, investment spending _____, and the aggregate demand curve shifts to the _____.
A) decrease; increases; right
B) increase; increases; right
C) decrease; increases; left
D) increase; decreases; left

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the quantity of money in circulation, interest rates typically decrease because there is more money available for lending. Lower interest rates make borrowing cheaper, which tends to increase investment spending. As investment spending increases, the aggregate demand curve shifts to the right, reflecting an increase in overall demand in the economy.

If the Fed Increases the Quantity of Money in Circulation