ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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a decrease in consumer expenditure
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a decrease in investment
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an increase in bank lending
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an increase in the rate of interest
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Detailed explanation-1: -When a bank makes loans out of excess reserves, the money supply increases. We can predict the maximum change in the money supply with the money multiplier.
Detailed explanation-2: -In other words, when the money supply increases, and neither velocity nor quantity changes, the price level must also increase-we call this inflation. This equation helps us understand the relationship between money supply and price level.
Detailed explanation-3: -A rise in the bank rate means that the interest charge from commercial banks will increase and it would force commercial banks to increase their interest which will reduce the borrowing by general public and interest rate is high, so the money supply would decrease.
Detailed explanation-4: -A larger money supply lowers market interest rates, making it less expensive for consumers to borrow. Conversely, smaller money supplies tend to raise market interest rates, making it pricier for consumers to take out a loan.