Holding everything else constant,a decrease in the money supply causes
A) interest rates to decline initially.
B) interest rates to increase initially.
C) bond prices to increase initially.
D) both A and C of the above.
E) both B and C of the above.

Question

Quizplus · Accepted Answer

When the money supply decreases, the demand for money exceeds the supply, leading to an increase in interest rates. Higher interest rates tend to reduce demand for bonds, causing bond prices to decrease. Therefore, both A and C are incorrect, and the correct answer is B.

Holding Everything Else Constant,a Decrease in the Money Supply Causes