Question

Which of the following statements is true? a An increase in the money supply lowers the equilibrium rate of interest. b The supply of money curve is downward sloping. c The supply of money curve is a horizontal line. d A decrease in the money supply lowers the equilibrium rate of interest. e The demand for money curve is a vertical line.

Answer 1

a. An increase in the money supply lowers the equilibrium rate of interest.

Step-by-step explanation:

An increase in the money supply lowers the equilibrium rate of interest therefore, making it less expensive for individuals to borrow according to the liquidity preference model developed by John Maynard Keynes.