If the Reserve Bank is worried about inflation and wants to raise the interest rate, in the short run it can
A) increase the quantity of money.
B) decrease the demand for money.
C) decrease the quantity of money.
D) increase the demand for money.
E) directly raise the interest rate without affecting either the demand for money or the supply of money.

Question

Quizplus · Accepted Answer

When the Reserve Bank is concerned about inflation, it can decrease the quantity of money in the economy. This action typically leads to higher interest rates as the reduced money supply increases the cost of borrowing.

If the Reserve Bank Is Worried About Inflation and Wants