The direct effect of an increase in the money supply is that people will save more money, causing a decrease in economic activity and a fall in prices.
This choice is accurate because when interest rates decline and investment spending rises, a rise in the money supply will raise aggregate demand. The rise in the aggregate demand curve causes an economy's price level and output to rise. Short-term increases in the money supply appear to result in gains in output, while long-term increases in prices the money supply only lead to inflation. Because the money will be used for public expenditures.
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