In the presence of Regulation Q, when interest rates rise:
A)the transaction demand for money increases in the economy.
B)people invest in the bond markets.
C)the economy grows faster.
D)people withdraw money from banks seeking higher interest rates elsewhere.
E)U.S.dollar depreciates.

Question

Quizplus · Accepted Answer

Regulation Q limits the interest rates that banks can offer on deposits, which means that when interest rates rise in the overall economy, people may withdraw their money from banks to seek higher interest rates elsewhere, such as in the bond markets. This would lead to a decrease in the demand for money held in banks.

In the Presence of Regulation Q, When Interest Rates Rise