If people start to use cash because of an increase in credit card fraud,which of the following would we expect to happen under a neutralization policy?
A) The money supply would decrease,real GDP would not change,and the interest rate would not change.
B) The money supply would increase,real GDP would not change,and the interest rate would not change.
C) The money supply would decrease,real GDP would increase,and the interest rate would decrease.
D) The money supply would increase,real GDP would not change,and the interest rate would decrease.
E) The money supply would decrease,real GDP would decrease,and the interest rate would not change.

Question

Quizplus · Accepted Answer

Under a neutralization policy, the central bank would increase the money supply to offset the increased demand for cash, keeping real GDP and interest rates stable.

If People Start to Use Cash Because of an Increase