ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A larger money supply lowers market interest rates, making it less expensive for consumers to borrow. Conversely, smaller money supplies tend to raise market interest rates, making it pricier for consumers to take out a loan.

Detailed explanation-2: -An increase in the money supply ( M) without an increase in output ( Y) causes the price level to change by the same change in the money supply. In other words, output doesn’t change, but when the money supply doubles, the price level also doubles.

Detailed explanation-3: -An increase in the supply of money typically lowers interest rates, which in turn, generates more investment and puts more money in the hands of consumers, thereby stimulating spending. Businesses respond by ordering more raw materials and increasing production.

Detailed explanation-4: -what occurs when a change in the price level leads to a change in interest rates and interest sensitive spending; when the price level drops, you keep less money in your pocket and more in the bank. That drives down interest rates and leads to more investment spending and more interest-sensitive consumption.