ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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News predicting rising interest rates will cause the demand for money to increase.
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True
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False
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Either A or B
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None of the above
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Explanation:
Detailed explanation-1: -As the interest rate rises, money demand will fall. Once it falls to equal the new money supply, there will be no further difference between the amount of money people hold and the amount they wish to hold, and the story will end. This is why (and how) a decrease in the money supply raises the interest rate.
Detailed explanation-2: -Changes in the price level (inflation or deflation) When there is an increase in the price level, the demand for money increases. Conversely, when there is a decrease in the price level, the demand for money decreases.
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