When the interest rate falls in the money market, the quantity of money demanded ________ and the quantity of money supplied ________.
A) increases; decreases
B) decreases; increases
C) stays the same; decreases
D) increases; stays the same

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, thus increasing the quantity of money demanded. The quantity of money supplied, however, is determined by the central bank's monetary policy and is not directly affected by changes in the interest rate in the short term.

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