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

Question

Quizplus · Accepted Answer

When the demand for money decreases but the money supply remains the same, there will be an excess supply of money in the economy. To get rid of the excess supply, people will start investing or spending more, which will increase the aggregate demand. As a result, interest rates will fall. Therefore, choice D is correct as interest rates will fall and aggregate demand will rise.

If the Demand for Money Decreases, but the Fed Keeps