A decrease in the supply of cash on the overnight money market will lead to a(n)____________ in interest rates and a(n)_________ in investment expenditure.

Question

Quizplus · Accepted Answer

A decrease in the supply of cash on the overnight money market will tighten the supply of credit, which will increase the cost of borrowing and therefore result in an increase in interest rates. As interest rates increase, it becomes more expensive to borrow, which reduces investment expenditure. Therefore, there will be a decrease in investment expenditure.

A Decrease in the Supply of Cash on the Overnight