If the demand for money decreases, but the Fed keeps the money supply the same, then:

Question

Quizplus · Accepted Answer

If the demand for money decreases and the Fed keeps the money supply the same, there will be an excess supply of money in the market. To get rid of the excess supply, people will offer to lend money at lower interest rates. As a result, the nominal interest rates will fall. When nominal interest rates fall, borrowing and investment both increase which leads to an increase in aggregate demand.

If the Demand for Money Decreases, but the Fed Keeps