When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the money supply, it lowers interest rates to make borrowing cheaper, which encourages more consumption and investment. This increase in spending shifts the aggregate-demand curve to the right, indicating a higher total demand for goods and services in the economy at every price level.

When the Fed Increases the Money Supply, the Interest Rate