If the Fed decreases the money supply,the interest rate

Name: If the Fed decreases the money supply,the interest rate
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Question

Quizplus · Accepted Answer

According to the quantity theory of money, a decrease in the money supply leads to a decrease in aggregate spending, which causes a decrease in inflation. As a result, the demand for money increases, which leads to an increase in interest rates. Therefore, the correct choice is (C) increases and aggregate spending decreases.

If the Fed Decreases the Money Supply,the Interest Rate