All else constant, a decrease in the supply of money will lead to _______ in the equilibrium quantity of money and _______ in the equilibrium price of bonds.

Question

Quizplus · Accepted Answer

A decrease in the supply of money will lead to a decrease in the equilibrium quantity of money and an increase in the equilibrium price of bonds. This is because the demand for money is downward sloping, so a decrease in the supply of money will lead to a higher equilibrium price. The equilibrium quantity of money is the amount of money that people are willing to hold at the equilibrium price. A decrease in the supply of money will lead to a decrease in the equilibrium quantity of money because people will be willing to hold less money at the higher equilibrium price.

All Else Constant, a Decrease in the Supply of Money