The interest rate is the price borrowers pay to borrow money.Key interest rates are controlled by the Federal Reserve System.If the Federal Reserve acts to reduce interest rates, economists would expect the quantity of money demanded to
A)increase.
B)decrease.
C)not change.
D)not change, although the demand schedule itself will shift outward.

Question

Quizplus · Accepted Answer

When the Federal Reserve acts to reduce interest rates, the cost of borrowing money decreases. This will lead to an increase in demand for money since borrowing money becomes cheaper. Therefore, economists would expect the quantity of money demanded to increase.

The Interest Rate Is the Price Borrowers Pay to Borrow