If income increased but money supply remained the same, which of the following is likely to happen?

Question

Quizplus · Accepted Answer

When income increases but the money supply remains constant, the demand for money (for transactions, savings, etc.) typically increases. This increased demand for a fixed supply of money leads to higher interest rates as people are willing to pay more for the money they borrow. The supply of money does not become perfectly elastic, and the level of real money balances does not increase because the actual quantity of money has not changed. Therefore, the equilibrium interest rate is likely to increase.

If Income Increased but Money Supply Remained the Same, Which