When the money market is drawn with the value of money on the vertical axis,an increase in the money supply
A)increases the price level and increases the value of money.
B)increases the price level and decreases the value of money.
C)decreases the price level and increases the value of money.
D)decreases the price level and decreases the value of money.

Question

Quizplus · Accepted Answer

According to the money market diagram with the value of money on the vertical axis, an increase in the money supply will shift the supply curve to the right. This will result in a decrease in the interest rate, which in turn will increase investments and aggregate demand. As aggregate demand increases, the price level also increases, leading to a decrease in the value of money. Therefore, the correct choice is B, which states that an increase in the money supply will increase the price level and decrease the value of money.

When the Money Market Is Drawn with the Value of Money