In the short run, when the Fed decreases the quantity of money
A) bond prices rise and the interest rate falls.
B) the demand for money increases.
C) the supply of money curve shifts rightward.
D) bond prices fall and the interest rate rises.

Question

Quizplus · Accepted Answer

When the Fed decreases the quantity of money, it reduces the supply of loanable funds available to borrowers. This leads to an increase in the interest rate, which in turn causes bond prices to fall. Therefore, bond prices fall and the interest rate rises.

In the Short Run, When the Fed Decreases the Quantity