A decrease in the money supply leads to a long-run increase in the equilibrium interest rate if the _____ effect dominates other effects.

Question

Quizplus · Accepted Answer

A decrease in the money supply reduces the amount of money available for lending, which increases the equilibrium interest rate if the liquidity effect (the immediate impact of a change in the money supply on interest rates) dominates other effects.

A Decrease in the Money Supply Leads to a Long-Run