For interest rates to remain stable during economic expansions, what should happen to the growth rate of the money supply in relation to the demand for money?
A) The growth rate of the money supply should exceed the growth in the demand for money.
B) The growth rate of the money supply should just match the growth in the demand for money.
C) The growth rate of the money supply should be less than the growth in the demand for money.
D) The growth rate of the money supply should be zero.

Question

For interest rates to remain stable during economic expansions, what should happen to the growth rate of the money supply in relation to the demand for money?  
A) The growth rate of the money supply should exceed the growth in the demand for money. 
B) The growth rate of the money supply should just match the growth in the demand for money. 
C) The growth rate of the money supply should be less than the growth in the demand for money. 
D) The growth rate of the money supply should be zero.

Quizplus · Accepted Answer

When the growth rate of the money supply matches the growth in the demand for money, interest rates remain stable during economic expansions. This is because the supply and demand for money are in balance, and there is no pressure on interest rates to rise or fall. If the growth rate of the money supply exceeds the growth in the demand for money, there will be an oversupply of money and interest rates will fall. If the growth rate of the money supply is less than the growth in the demand for money, there will be a shortage of money and interest rates will rise. Finally, if the growth rate of the money supply is zero, there will be no new money entering the economy, and interest rates may rise due to scarcity of money.

For Interest Rates to Remain Stable During Economic Expansions, What