If the fed expands the money supply by $1 trillion, what will happen in the money market?

a. none of the above.

b. the equilibrium interest rate will rise, and less money will be exchanged in equilibrium.

c. the equilibrium interest rate will fall, and more money will exchanged in equilibrium.

d. the equilibrium interest rate will not change.

Question

Business

Arielle Cannon

17 January, 15:59

If the fed expands the money supply by $1 trillion, what will happen in the money market?

a. none of the above.

b. the equilibrium interest rate will rise, and less money will be exchanged in equilibrium.

c. the equilibrium interest rate will fall, and more money will exchanged in equilibrium.

d. the equilibrium interest rate will not change.

+2

Answers (1)

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Boyer · Answer 1

If the Fed expands the money supply by $1 trillion, the money market will be (letter C.) the equilibrium interest rate will fall, and more money will exchanged in equilibrium. It is because people will have more money to spend. Some would choose to use this money to buy goods and services while other opt to put their money in banks which may lead to lower interest rates to persuade people in borrowing.