When borrowing money becomes easier, consumption and lending (and borrowing) rates tend to rise.
Higher rates of consumption, lending, and borrowing can be linked to a rise in an economy's overall output, expenditure, and, presumably, GDP in the near run.
For a given price level and output, an increase in the money supply lowers the interest rate.
<h3>What Factors Influence Money Supply?</h3>
The most important determinant of the money supply is the Federal Reserve policy.
The Federal Reserve influences the money supply via changing bank deposits, which are its most essential component. This is how it goes.
Depository institutions (commercial banks and other financial institutions) are required by the Federal Reserve to retain a portion of their deposit liabilities as reserves.
These reserves are held by depository institutions as cash in vaults or ATMs, as well as deposits at Federal Reserve banks.
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