Impact of Changes in Supply of Money:
Changes in Money Supply would mean the Ms Schedule in figure will shift to Ms' , what would be its consequences? Increase in supply of money would push down the rate of interest in the money market which would make the bears active. As a result of this the speculative demand for money would start rising till the point where the excess supply of money gets absorbed by the rise in the demand for money and the equilibrium is restored in the money market at r1 (lower rate of interest) and M1 (higher quantity of money) levels.
In the figure, one can see that to raise the interest rate the central bank need to use the contractionary monetary policy and to reduce the interest rate the expansionary monetary policy.
![321_Impact of Changes in Supply of Money.png](https://www.expertsmind.com/CMSImages/321_Impact%20of%20Changes%20in%20Supply%20of%20Money.png)
Next we turn to further analysis of money and its linkages with interest rate and level of output.