QuestionJune 23, 2025

The "direct effect" of an increase in the money supply is to A increase aggregate demand as people spend their excess money balances. B increase aggregate demand as interest rates fall and investment spending increases. C increase aggregate supply as producers anticipate higher future profits. D decrease the rate of inflation.

The "direct effect" of an increase in the money supply is to A increase aggregate demand as people spend their excess money balances. B increase aggregate demand as interest rates fall and investment spending increases. C increase aggregate supply as producers anticipate higher future profits. D decrease the rate of inflation.
The "direct effect" of an increase in the money supply is to
A increase aggregate demand as people spend their excess money balances.
B increase aggregate demand as interest rates fall and investment spending increases.
C increase aggregate supply as producers anticipate higher future profits.
D decrease the rate of inflation.

Solution
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Answer

A increase aggregate demand as people spend their excess money balances. Explanation 1. Identify the direct effect of increased money supply The direct effect of an increase in the money supply is typically related to spending behavior. When people have more money, they tend to spend more. 2. Determine which option aligns with increased spending Increased spending due to excess money balances directly increases aggregate demand.

Explanation

1. Identify the direct effect of increased money supply<br /> The direct effect of an increase in the money supply is typically related to spending behavior. When people have more money, they tend to spend more.<br /><br />2. Determine which option aligns with increased spending<br /> Increased spending due to excess money balances directly increases aggregate demand.
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