An increase in the money supply: raises the interest rate, causing an increase in investment and an increase in GDP. lowers the
interest rate, causing an increase in investment and an increase in GDP. lowers the interest rate, causing a decrease in investment and a decrease in GDP. lowers the interest rate, causing a decrease in investment and an increase in GDP. raises the interest rate, causing a decrease in investment and an increase in GDP.
1 answer:
Answer: Lowers interest rate, causing an increase in investment and an increase in GDP.
Explanation:
An increase in the money supply which is also an expansionary monetary policy lead to lowers the interest rate, causing an increase in investment and an increase in GDP. This is also shown in a diagram.
Lower interest rate gives an advantage for the people to invest more, this is because of the cheaper loans.
In the IS-LM diagram, it was shown that there is a shift in the LM curve rightwards due to increase in the money supply. So, this increase in the money supply lowers the interest rate from i to i' and increases output from Y to Y'.
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