A decrease in the money supply causes interest rates to __________,investment spending to __________ and Gross Domestic Product to __________.
A)fall; rise; fall
B)fall; fall; rise
C)rise; rise; rise
D)rise; fall; fall
E)rise; fall; rise

Question

Quizplus · Accepted Answer

A decrease in the money supply causes an increase in interest rates due to the decrease in supply of loanable funds. This, in turn, leads to a decrease in investment spending by businesses since it becomes more expensive to borrow money to invest. The decrease in investment spending leads to a decrease in Gross Domestic Product (GDP) since there is less spending on goods and services, thus, causing a fall in GDP.

A Decrease in the Money Supply Causes Interest Rates to __________,Investment