Assuming no effect on exchange rates, which of the following is likely to happen if the money supply in a country contracts?
A)Decline in the international price competitiveness
B)Rise in the interest rates
C)Fall in the inflow of financial capital
D)Rise in the real spending

Question

Quizplus · Accepted Answer

A contraction in the money supply typically leads to higher interest rates as there is less money available for borrowing. This can make loans more expensive, which tends to increase the cost of borrowing.

Assuming No Effect on Exchange Rates, Which of the Following