If the Fed increases the money supply,
A)the interest rate increases, which tends to raise stock prices.
B)the interest rate increases, which tends to reduce stock prices.
C)the interest rate decreases, which tends to raise stock prices.
D)the interest rate decreases, which tends to reduce stock prices.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the money supply, it typically leads to lower interest rates. Lower interest rates make borrowing cheaper, which can stimulate investment and spending. This environment is generally favorable for the stock market, as it can lead to higher corporate profits and increased consumer spending, thus tending to raise stock prices.

If the Fed Increases the Money Supply