Question

A(n) _____ in the money supply will cause interest rates to decrease, which, in turn, causes spending to _____.
A.decrease; decrease
B.increase; increase
C.decrease; increase
D.increase; decrease

Answer 1

Hint: Think of interest as the price of borrowing money

The higher the interest, the more expensive money is (so to speak). The lower the interest, the cheaper money is.

Answer 2

so what did you get?

Answer 3

so it's D

Answer 4

Or B/!

Answer 5

if there's an increase in the money supply, there's more money out there and it's easier to get

so lending goes up (more people are willing to lend) and interest rates go down

Answer 6

lending goes up because there's a lot more money to lend and it's not as rare (if the money supply is smaller)

Answer 7

but spending wouldn't go down

if there's more money flowing in the economy, then people wouldn't spend less (unless they're all frugal)

Answer 8

to sum up:

increase in money supply ----> more lending ---> lower interest rates

increase in money supply ----> more money flowing through economy ----> people spend more

Answer 9

if the money supply was decreased, then money or credit would be harder to get

this would lead to a shortage of supply (with the same amount of demand)...which would drive interest rates up

people wouldn't have as money, so they would save instead of spend

Answer 10

decrease increase