When the Fed increases the money supply, we expect
A)interest rates and stock prices to rise.
B)interest rates and stock prices to fall.
C)interest rates to rise and stock prices to fall.
D)interest rates to fall and stock prices to rise.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the money supply, it typically lowers interest rates to encourage borrowing and investment. Lower interest rates make bonds and other fixed-income investments less attractive compared to stocks, leading to an increase in stock prices as investors seek higher returns.

When the Fed Increases the Money Supply, We Expect