When the interest rate falls in the money market, the quantity of money demanded _______ and the quantity of money supplied _______.
A)increases; decreases
B)remains unchanged; decreases
C)increases; remains unchanged
D)remains unchanged; remains unchanged
E)decreases; increases

Question

Quizplus · Accepted Answer

When the interest rate falls, the cost of borrowing money decreases, making it more attractive for people and businesses to borrow money, hence the quantity of money demanded increases. The quantity of money supplied, however, is determined by the central bank and is not directly affected by changes in the interest rate in the short term, so it remains unchanged.

When the Interest Rate Falls in the Money Market, the Quantity