When the Fed Unexpectedly Increases the Money Supply, It Will

question 84

Multiple Choice

When the Fed unexpectedly increases the money supply, it will cause:​

• A)an increase in aggregate demand because real interest rates will rise, stimulating business investment and consumer purchases
• B)an increase in aggregate demand because the dollar will appreciate on the foreign exchange market, leading to an increase in net exports
• C)an increase in aggregate demand because higher interest rates will tend to increase asset prices, which increases wealth and thereby stimulates current consumption.
• D)an increase in aggregate demand because the dollar will depreciate on the foreign exchange market, leading to a decrease in net exports.
• E)an increase in aggregate demand because lower interest rates will tend to increase asset prices, stimulating current consumption.

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