If the demand for money and the supply of money both decrease, the equilibrium
A) interest rate will decline, but we cannot predict the change in the equilibrium quantity of money.
B) quantity of money and the equilibrium interest rate will both increase.
C) quantity of money will increase, but we cannot predict the change in the equilibrium interest rate.
D) quantity of money will decline, but we cannot predict the change in the equilibrium interest rate.

Question

Quizplus · Accepted Answer

When both the demand for money and the supply of money decrease, the equilibrium quantity of money will decrease. This means that people will hold less money, leading to a decrease in the quantity of money. As for the interest rate, we cannot predict the change because it depends on the relative magnitude of the decrease in demand and supply of money.

If the Demand for Money and the Supply of Money