Question

An increase in money supply will always decrease the interest rate.  Is this statement TRUE, FALSE, or UNCERTAIN?  

Answer 1

[TRUE]

When the Federal Reserve decides to increase the money supply in the economy by way of pursuing the monetary policy, it leaves people in the economy with more money with themselves. With more money in hand than needed, savings are increased and businesses and individuals find it easier to get loans. The availability of more deposits with bank reduces the rate of interest and makes it more convenient for the businesses to invest at a cheaper cost.

Thus, an increase in money supply will always decrease the interest rate.