ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The correct answer is-False. When the money supply increases, interest rates reduce. As a result, consumers can buy since it is made cheap for them. However, interest rates increase when the money supply decreases and consumers find it expensive to acquire a loan.

Detailed explanation-2: -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-3: -Monetary policy attempts to increase aggregate demand during recession by increasing the growth of the money supply. The theory of liquidity preference suggests that increasing the money supply will cause interest rates to fall. Lower interest rates cause higher investment spending which increases aggregate demand.

Detailed explanation-4: -When the Fed increases the money supply, it lowers the interest rate and increases the quantity of goods and services demanded at any given price level, shifting aggregate-demand to the right.

Detailed explanation-5: -FALSE: A change in interest rates may not change investment or consumer durable goods expenditures, however it can still affect net exports and AS via currency depreciation. There are also numerous potential credit channel effects.