What I understand is that an increase in the money supply brings about a fall in interest rate as there is more money available, the price of money will be cheaper. But some theory such as liquidity effect posits that increase in money supply will increase in interest rate. Is that they view the problem differently or the two situations are different?
"Money growth also affects interest rates and prices and those in turn will influence stock prices. Assuming that money demand remains constant, increase in money supply raises interest rates thereby increasing the opportunity cost of holding cash as well as stocks. Lured by higher interest earnings, people are likely to convert their cash and stock holdings to interest-bearing deposits and securities with obvious implications for stock prices. Since the rate of inflation is positively related to money growth, an increase in money supply may lower the demand for stocks and assets (as real value of such assets decline due to inflation) resulting in higher discount rates (as banks become more cautious in its lending) and lower stock prices. The rising interest rates and inflation will also adversely affect corporate profits (earnings) leading to lower stock returns (both actual and expected) and thereby making stock possession (as well as new purchase) less attractive."
The above is quoted from an article. It mention that increase in money supply raises interest rates thereby increasing the opportunity cost of holding cash as well as stocks. I don't understand how increasing in money supply would increase interest rate. Could you explain?