Which of the following will lead to a decrease in the equilibrium interest rate in the economy?
A)an increase in the price level
B)a sale of government securities by the Fed
C)a decrease in GDP
D)an increase in the discount rate
E)an increase in the reserve requirement

Question

Quizplus · Accepted Answer

A decrease in GDP would lead to a decrease in the demand for loans, which would lead to a decrease in the equilibrium interest rate in the economy. A) An increase in the price level would lead to an increase in inflation expectations, which would lead to an increase in the equilibrium interest rate. B) A sale of government securities by the Fed would decrease the money supply, which would lead to an increase in the equilibrium interest rate. D) An increase in the discount rate would increase the cost of borrowing for banks, which would lead to an increase in the equilibrium interest rate. E) An increase in the reserve requirement would decrease the money supply, which would lead to an increase in the equilibrium interest rate.

Which of the Following Will Lead to a Decrease in the Equilibrium