As part of the "wealth channel of monetary policy," a lower money supply __________ interest rates and thus __________ bond prices.
A) raises; raises
B) raises; lowers
C) lowers; raises
D) lowers; lowers

Question

Quizplus · Accepted Answer

A lower money supply typically leads to higher interest rates because there is less money available for borrowing. Higher interest rates, in turn, lead to lower bond prices because the fixed payments from existing bonds become less attractive compared to new bonds issued at the higher current interest rates.

As Part of the "Wealth Channel of Monetary Policy," a Lower