Other things equal, if the supply of money is reduced,
A) the demand for money will increase.
B) the interest rate will fall.
C) bond prices will fall.
D) investment spending will increase.

Question

Quizplus · Accepted Answer

When the supply of money is reduced, the demand for money remains the same or increases slightly, resulting in a decrease in bond prices. This is because investors are willing to pay less for a bond with a lower return on investment. The interest rate would likely increase due to decreased demand for borrowing, and investment spending would decrease, not increase, due to higher borrowing costs.

Other Things Equal, If the Supply of Money Is Reduced