Assume the Fed has complete control over the money supply. If the demand for money were greater than the supply of money, we would expect

Question

Quizplus · Accepted Answer

If the demand for money is greater than the supply of money, there will be a shortage of money. This shortage will cause people to bid up the price of money, which is the interest rate. Thus, we would expect a decrease in the quantity of money demanded (as people look for alternatives to money) and an increase in the rate of interest (as people bid up the price of money). Therefore, the best choice is B.

Assume the Fed Has Complete Control Over the Money Supply