An increase in the demand for money, with no change in the supply of money, will lead to _____ in the equilibrium quantity of money and _____ in the equilibrium interest rate.
a) no change; an increase
b) no change; a decrease
c) a decrease; an increase
d) an increase; a decrease
Money Demand and Supply:
In economics, the demand for money represents the quantity of money individuals would like to hold, which depends positively on income and negatively on interest rate (the opportunity cost of holding cash). The supply of money, on the other hand, is usually fixed by the central bank does not necessarily responds to changes in prices.
Answer and Explanation:
The answer is a).
The demand curve for money is downward sloping, implying that quantity demanded for money decreases with interest rate. The supply...
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Learn more about this topic:
from Economics 102: MacroeconomicsChapter 11 / Lesson 10