Which of the following changes is most likely to happen when there is a decrease in the supply of money in a market that was initially in equilibrium?
A) The demand for money increases.
B) Planned investment spending increases.
C) The interest rate increases.
D) Aggregate expenditure increases.
E) The demand for money decreases.

Question

Quizplus · Accepted Answer

When the supply of money decreases, there is less money available to borrow, leading to an increase in the interest rate. This is because lenders will have less money to lend, and borrowers will be willing to pay a higher interest rate to get access to the limited funds. This increase in interest rate will help to decrease planned investment spending and may also decrease aggregate expenditure. The demand for money may stay the same or decrease, as people may be less willing to borrow money at a higher interest rate.

Which of the Following Changes Is Most Likely to Happen