Recall the Application about the Fed's response to the collapse of the investment house Bear Stearns as well as its handling of the 2008 financial crisis with respect to other financial institutions to answer the following question(s).
-According to this Application, the Fed increased its lending by hundreds of billions of dollars to financial institutions as a response to the ongoing financial crisis. This increase in loans to financial institutions increased the supply of money in the economy. When the supply of money increases, the money supply curve will
A) shift to the right, increasing the interest rate.
B) shift to the right, decreasing the interest rate.
C) shift to the left, increasing the interest rate.
D) shift to the left, decreasing the interest rate.

Question

Quizplus · Accepted Answer

An increase in the supply of money shifts the money supply curve to the right, leading to a decrease in the interest rate. Therefore, the correct answer is B.

Recall the Application About the Fed's Response to the Collapse