📚 Learning Guide
Money Market Dynamics
easy

Decrease in money demand : Lower equilibrium interest rates :: Increase in money supply : ?

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
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Choose the Best Answer

A

Higher bond prices

B

Increased consumer savings

C

Decreased velocity of money

D

Higher interest rates

Understanding the Answer

Let's break down why this is correct

Answer

When there is a decrease in money demand, it usually leads to lower equilibrium interest rates. This happens because people want to hold less cash, so banks have more money to lend out, making borrowing cheaper. Similarly, when there is an increase in the money supply, it means that there is more money available in the economy. This increase can also lead to lower equilibrium interest rates because more money in the system makes it easier for banks to lend, which can encourage spending and investment. For example, if a central bank decides to print more money, businesses may find it easier to get loans, which can stimulate economic growth.

Detailed Explanation

When the money supply goes up, people have more money to spend. Other options are incorrect because Some might think that more money means people save more; Velocity means how fast money moves in the economy.

Key Concepts

Money market dynamics
Interest rates
Economic activity
Topic

Money Market Dynamics

Difficulty

easy level question

Cognitive Level

understand

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