An increase in the demand for money, combined with sales of government securities to the public, will tend to raise interest rates.

Question

Quizplus · Accepted Answer

An increase in the demand for money tightens the money supply, and when the government sells securities to the public, it is essentially taking money out of circulation to hold in exchange for those securities. Both actions reduce the available money supply, leading to higher interest rates as borrowers compete for fewer available funds.

An Increase in the Demand for Money, Combined with Sales