Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It would decrease the demand for money, lowering interest rates.
B
It would increase the demand for money, raising interest rates.
C
It would have no effect on the money demand curve.
D
It would shift the money supply curve to the left.
Understanding the Answer
Let's break down why this is correct
Answer
A significant increase in consumer credit usage means that people are borrowing more money to buy things. When consumers borrow more, they have more money to spend, which can lead to higher demand for goods and services. This increased demand can push up prices, leading to inflation. In the money market, as people take out loans, the supply of money in circulation increases, which can lower interest rates. For example, if many people take out loans to buy cars, banks may have more money to lend, making it cheaper to borrow money for other needs, changing the overall balance in the money market.
Detailed Explanation
When people use more credit, they need less cash on hand. Other options are incorrect because Some might think that more credit means people want more money; It's a common mistake to think that credit use doesn't change anything.
Key Concepts
Money Market Dynamics
Interest Rates
Consumer Behavior
Topic
Money Market Dynamics
Difficulty
hard level question
Cognitive Level
understand
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