In the short run, when the Fed increases the quantity of money, the
A) demand for money increases.
B) price level decreases.
C) nominal interest rate falls.
D) quantity demanded of money decreases.
E) demand for money decreases.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, an increase in the quantity of money leads to an increase in aggregate demand, which puts upward pressure on prices. To counteract this, the Fed typically lowers nominal interest rates.

In the Short Run, When the Fed Increases the Quantity