How does the interest rate change when the price level falls and when the money supply falls?
A) The interest rate rises both when the price level falls and when the money supply falls.
B) The interest rate rises when the price level falls and falls when the money supply falls.
C) The interest rate falls when the price level falls and rises when the money supply falls.
D) The interest rate falls both when the price level falls and when the money supply falls.

Question

Quizplus · Accepted Answer

When the price level falls, the demand for money decreases, leading to a lower interest rate. However, when the money supply falls, there is less money available, which increases the interest rate.

How Does the Interest Rate Change When the Price Level