The interest rate is __________ related to changes in income, __________ related to changes in money supply, and __________ related to changes in expected inflation.

Question

Quizplus · Accepted Answer

Interest rates are positively related to changes in income because as income increases, demand for money increases, leading to higher interest rates. They are negatively related to changes in money supply because an increase in money supply typically lowers interest rates. Finally, interest rates are positively related to changes in expected inflation since lenders demand higher rates to compensate for the decreased purchasing power over time.

The Interest Rate Is __________ Related to Changes in Income