Suppose money demand increases and the Bank of Canada does NOT alter its monetary policy.What will be the effect on interest rates?
A) Interest rates will increase.
B) Interest rates will decrease.
C) Interest rates will remain the same.
D) Interest rates will first increase, and then decrease.

Question

Suppose money demand increases and the Bank of Canada does NOT alter its monetary policy.What will be the effect on interest rates?  
A) Interest rates will increase. 
B) Interest rates will decrease. 
C) Interest rates will remain the same. 
D) Interest rates will first increase, and then decrease.

Quizplus · Accepted Answer

When money demand increases without a corresponding increase in the money supply by the central bank, the price of borrowing money (interest rates) will increase due to higher demand for a fixed amount of money.

Suppose Money Demand Increases and the Bank of Canada Does