If there is a decrease in the supply of money,which one of the following is most likely to happen?
A)the demand for money will increase
B)planned investment spending will increase
C)interest rates will rise
D)aggregate expenditure will increase
E)the demand for money will decrease

Question

Quizplus · Accepted Answer

When there is a decrease in the supply of money, the demand for money will remain unchanged, but there will be a shortage of money in the economy. This will cause interest rates to rise because lenders will demand higher interest rates to lend out money due to its scarcity. As a result, borrowing and spending are likely to decrease, causing a decrease in aggregate expenditure. Therefore, the correct answer is C, interest rates will rise.

If There Is a Decrease in the Supply of Money,which