Consider the money market. Suppose the U. S. economy begins to boom and aggregate output increases. Describe the effect on the interest rate if the Federal Reserve decides to increase the money supply at the same time that aggregate output increases

The interest rate will probably increase because the money supply curve will probably have a relatively small shift.

Explanation:

An interest rate is the cost of borrowing money.

Interest provides a certain compensation for bearing risk.

Interest rate levels are a factor of the supply and demand of credit.

The interest rate for each different type of loan depends on the credit risk, time, tax considerations, and convertibility of the particular loan.