Suppose a business had a project that would return 7.9% on its
investment.  If the Fed increased the money supply to $1,800 billion,
would this firm undertake this project?

My answer supposes that you are using the M1 measure of money supply. 
Otherwise, the question would not make sense since the other measures
of money supply are already much larger than the "increased" amount.

At the end of September 2004, the M1 measure of money supply stood at
$1328.7 billion.  If the Federal Reserve were to increase it to $1800
billion, this would amount to a percentage change of 35%.  Since the
price level increase is directly proportional to the money supply
increase, this would imply that the project's discount rate would be
at least 35%, and would in reality be higher to compensate for its
risk.  Since the 7.9% rate of return would not begin to overcome the
increased inflation, the firm would not undertake the project and
would seek projects yielding more than 35%.

Sincerely,

Wonko

Source: "Money Supply" Wikipedia (July 9, 2005)
http://en.wikipedia.org/wiki/Money_supply

Search terms: United States money supply