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

Question

Quizplus · Accepted Answer

A decrease in the money growth rate reduces the supply of money in the economy, leading to an increase in the demand for money as individuals and firms try to hold onto existing money balances for longer periods of time. The increase in money demand leads to a decrease in the nominal interest rate as individuals and firms are willing to accept lower returns to hold onto money. Additionally, the decrease in the supply of money reduces the pressure on prices, leading to a decrease in the inflation rate.

A Decrease in the Money Growth Rate in the Market