In the presence of Regulation Q, when interest rates would rise, _____.
A) the transaction demand for money in the economy would increase
B) people would invest in the bond markets
C) the economy would grow faster
D) people would withdraw money from banks seeking higher interest rates elsewhere
E) the U.S. dollar would depreciate

Question

Quizplus · Accepted Answer

Regulation Q placed a ceiling on the interest rates that banks could pay on deposits, which discouraged people from withdrawing their money seeking higher interest rates elsewhere. Therefore, if interest rates would rise, people would have an increased incentive to withdraw their money from banks to invest in higher-yielding instruments such as bonds or seek higher interest rates elsewhere.

In the Presence of Regulation Q, When Interest Rates Would