If the Fed increases the money supply,

Question

a.

the interest rate decreases, which tends to reduce stock prices.
b.

the interest rate increases, which tends to reduce stock prices.
c.

the interest rate increases, which tends to raise stock prices.
d.

the interest rate decreases, which tends to raise stock prices.

Answer 1

The correct answer is:

d. the interest rate decreases, which tends to raise stock prices.

When the Federal Reserve (Fed) increases the money supply, it typically lowers interest rates. Lower interest rates make borrowing cheaper, which can stimulate investment and spending. This can lead to increased corporate profits and economic growth, often resulting in higher stock prices.