Money Supply?

Question

Will an Increase in money supply always bring the interest rate down? T/F. Explain

Answer 1

False

- Not if people assume that the money supply will increase, if firms assume that the money supply will soon increase, they will raise prices, and the money supply will have no effect on anything.

Answer 2

false.....The market will always find a way to keep the interest rate high..thatz life my friend.

Answer 3

Supply and demand. If there is more money on the market, it will be cheaper. It will also be worth less.

Answer 4

Yes it will.  Money supply is shown by a vertical line that only shifts when the money supply changes.  The demand for money is downward slopping, similar to market demand for any good.  An increase in supply shifts the supply curve to the right, which causes a move down the downward slopping demand curve, therefore there will be a lower interest rate with more funds being traded (borrowed) at the new equilibrium.