When the money supply increases
A)interest rates fall and so aggregate demand shifts right.
B)interest rates fall and so aggregate demand shifts left.
C)interest rates rise and so aggregate demand shifts right.
D)interest rates rise and so aggregate demand shifts left.

Question

Quizplus · Accepted Answer

When the money supply increases, it leads to a decrease in interest rates as there is more money available for lending. This decrease in interest rates will encourage borrowing and consumption which will increase aggregate demand. Therefore, the answer is A - interest rates fall and so aggregate demand shifts right.

When the Money Supply Increases