In the short run, a decrease in the money supply will have which of the following impacts on the market for money?
A) Interest rates will fall.
B) Interest rates will rise.
C) The demand for money will increase.
D) The demand for money will decrease.

Question

Quizplus · Accepted Answer

In the short run, a decrease in the money supply leads to a higher interest rate because there is less money available for borrowing, which increases the cost of borrowing (interest rates). Demand for money is not directly affected by changes in the money supply; it is influenced by factors such as income levels and prices.

In the Short Run, a Decrease in the Money Supply