The money supply contracts when the Federal Reserve Board increases interest rates.

Question

Quizplus · Accepted Answer

When the Federal Reserve Board increases interest rates, it becomes more expensive for banks to borrow money from the Federal Reserve. This makes it less desirable for banks to lend money to consumers and businesses, which leads to a decrease in the amount of money in circulation in the economy. As a result, the money supply contracts.

The Money Supply Contracts When the Federal Reserve Board Increases