If the Fed decided to increase the money supply, which of the following chains o

Question

If the Fed decided to increase the money supply, which of the following chains of events best depicts what would happen?

Buy bonds --> Ms falls --> r increases --> I increases --> AE increases --> Inventory falls --> Y decreases / unemployment falls

Sell bonds --> Ms increase --> r falls --> I increases --> AE increases --> Inventory falls --> Y increases / unemployment falls

Buy bonds --> Ms increase --> r increases --> I increases --> AE increases --> Inventory falls --> Y increases / unemployment falls

Buy bonds --> Ms increase --> r falls --> I increases --> AE increases --> Inventory falls --> Y increases / unemployment falls

Explanation / Answer

"D"

if the fed wants to increase the money supply they will buy bonds and give people money in return. In will decrease the interest rate and cause the investment to rise. Increased investment will increase demand and inventory falls it will increase the output Y and unemployment will fall.  

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