Question

If the Fed increases the money supply and as a result, households and firms buy more short-term financial assets, the prices of those short-term financial assets will ________ and the interest rates on those assets will ________.

Answer 1

Answer:

rise, fall

Explanation:

Money supply refers to the total value of money in the form of currency and other liquid instruments available in an economy.

It includes cash, coins, and other near money substitutes.

Money supply is measured as it influences various activities taking place all around us in the economy.

A larger money supply leads to fall in interest rates. As a result, the prices of those short-term financial assets will rises. Conversely, smaller money supplies leads to rise in interest rates which in turn leads to fall in prices of the short-term financial assets.