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Suppose planned investment and consumption are independent of the interest rate. If the money supply is increased, what will happen?

A) Planned aggregate expenditure decreases
B) Planned aggregate expenditure increases
C) Planned aggregate expenditure remains unchanged
D) Planned investment increases

1 Answer

3 votes

Final answer:

Increasing the money supply will lead to a decrease in interest rates and an increase in planned aggregate expenditure.

Step-by-step explanation:

If the money supply is increased, it will lead to a decrease in interest rates. Lower interest rates make borrowing more attractive for businesses and consumers, which can increase planned investment and consumption. As a result, the increase in the money supply will cause planned aggregate expenditure to increase.

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