If the Fed increases the money supply,then:
A)the interest rate declines and the quantity of money demanded increases.
B)the interest rate declines and the quantity of money demanded declines.
C)the interest rate increases and the quantity of money demanded increases.
D)the interest rate increases and the quantity of money demanded declines.
E)the interest rate increases but the quantity of money demanded remains unaffected.

Question

Quizplus · Accepted Answer

When the Fed increases the money supply, the supply of money in the market increases. As a result, the interest rate decreases to encourage people to borrow, spend, and invest. When interest rates are low, people are incentivized to take out more loans, mortgages, and bonds, which increases the quantity of money demanded in the market. Therefore, choice A is correct.

If the Fed Increases the Money Supply,then