From 2007 to 2008, the Federal Reserve System reduced interest rates, the price which borrowers pay.As a result, economists expected the quantity of money demanded to
A)increase.
B)decrease.
C)not change.
D)not change, although the demand schedule itself will shift outward.

Question

Quizplus · Accepted Answer

When interest rates are reduced, it becomes less expensive to borrow money, so borrowers will be willing to borrow more money at lower interest rates. This results in an increase in the quantity of money demanded. Therefore, economists would expect the quantity of money demanded to increase in response to the Federal Reserve System's reduction of interest rates from 2007 to 2008.

From 2007 to 2008, the Federal Reserve System Reduced Interest