In order for interest rates to remain stable during economic expansions, how should the money supply change?
A) The money supply should decrease at a faster rate than money demand.
B) The money supply should grow at the same rate as money demand.
C) The money supply should grow at a faster rate than money demand.
D) The money supply should grow at a slower rate than money demand.

Question

In order for interest rates to remain stable during economic expansions, how should the money supply change?  
A) The money supply should decrease at a faster rate than money demand. 
B) The money supply should grow at the same rate as money demand. 
C) The money supply should grow at a faster rate than money demand. 
D) The money supply should grow at a slower rate than money demand.

Quizplus · Accepted Answer

If the money supply grows at the same rate as money demand, then interest rates will remain stable during economic expansions. This is because there will be sufficient funds available for borrowing, but not so many that it causes inflation. Option A would result in a decrease in the money supply, potentially causing interest rates to rise. Option C would result in an increase in the money supply, potentially causing inflation and again, rising interest rates. Option D would also result in an increase in interest rates, as there would be a shortage of funds for borrowing. Therefore, the best option is B.

In Order for Interest Rates to Remain Stable During Economic