If interest rates are to remain constant,the money supply should change:
A)in the opposite direction to a change in aggregate demand.
B)in the same direction as a change in money demand.
C)only when investment changes.
D)only when the demand for money decreases.
E)only when the inflation rate changes.

Question

Quizplus · Accepted Answer

If interest rates are to remain constant, the money supply should change in the same direction as a change in money demand. This means that if there is an increase in the demand for money (people want to hold more money), then the central bank should increase the money supply to meet that demand and keep interest rates steady. On the other hand, if there is a decrease in the demand for money, the central bank can decrease the money supply to keep interest rates constant.

If Interest Rates Are to Remain Constant,the Money Supply Should