Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
higher
B
stable
C
lower
D
fluctuating
Understanding the Answer
Let's break down why this is correct
Answer
In money market dynamics, when the demand for money decreases, it means that people and businesses want to hold less cash. This drop in demand causes the money demand curve to shift to the left. As a result, there is more money available in the market than people want to hold, which leads to lower interest rates. For example, if a company decides to invest in more equipment instead of keeping cash on hand, it reduces the overall demand for money. Consequently, banks may lower interest rates to encourage borrowing, making it cheaper for people to take loans.
Detailed Explanation
When people want less money, banks have more to lend. Other options are incorrect because Some might think that less demand means banks can charge more; It's easy to think that demand changes don't affect rates.
Key Concepts
Money Market Dynamics
Interest Rates
Economic Activity
Topic
Money Market Dynamics
Difficulty
easy level question
Cognitive Level
understand
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