Figure 4.3 -In Figure 4.3, an increase in the interest rate from i₂ to i₁ can be explained by A)a decrease in money growth. B)an increase in money growth. C)a decline in the price level. D)an increase in the expected price level.

Question

Quizplus · Accepted Answer

An increase in the interest rate can be explained by a decrease in money growth. This is because a decrease in money growth would cause a decrease in the supply of money in the economy, leading to a decrease in the quantity of money demanded at any given interest rate. As a result, the interest rate would increase to bring the quantity of money demanded back into equilibrium with the reduced money supply.

Figure 4.3 -In Figure 4.3, an Increase in the Interest Rate from Rate