When the Fed increases the money supply, A) the interest rate ...

[RRMR]

When the Fed increases the money supply,
 
  A) the interest rate rises and this stimulates consumption spending.
  B) the interest rate falls and this stimulates investment spending.
  C) the interest rate rises and this stimulates investment spending.
  D) people spend less because they have more money.

Question 2

Refer to Scenario 2 . What happens to the relative income distribution between the two countries under the conditions in the previous question? Explain.
 
  What will be an ideal response?

[akemokai]

Answer to Question 1

B

Answer to Question 2

The relative income distributions, with income of the capital-good intensive country greater than the consumer-good intensive country, would be expected to widen as the growth is greater in the capital-good intensive country.