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An increase in the money supply could causes
Interest rates to fall, investment spending to rise, and aggregate demand to rise
Interest rates to rise, investment spending to rise, and aggregate demand to rise
Interest rates to rise, investment spending to fall, and aggregate demand to fall
Interest rates to fall, investment spending to fall, and aggregate demand to fall
An increase in the money supply causes interest rates to fall, investment spending to rise, and aggregate demand to rise. A change in interest rates is one way to make that correspondence happen. A fall in interest rates increases the amount of money people wish to hold, while a rise in interest rates decreases that amount. A change in prices is another way to make the money supply equal the amount demanded. Ways to increase the money supply a) Print more notes – usually by Central Banks. b) Central Bank can electronically create money. ... c) Increase lending of money by Banks – If banks hold a small % of bank deposits as cash, they can lend out more cash and this increases the money Supply. d) Central Bank buying government securities.
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