A decrease in the money growth rate in the market clearing model causes:

Question

Quizplus · Accepted Answer

In the market clearing model, a decrease in the money growth rate reduces the supply of money. This reduction in the supply of money causes an increase in the nominal interest rate as people compete to borrow the limited funds available. At the same time, the decrease in the supply of money also causes an increase in money demand since people are willing to pay higher interest rates to obtain a smaller amount of money. This increase in money demand, in turn, leads to a decrease in the price level as people spend less money on goods and services, thus reducing their prices. Therefore, all of the above choices are correct.

A Decrease in the Money Growth Rate in the Market