A business cycle expansion increases income,causing money demand to ________ and interest rates to ________,everything else held constant.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

Question

Quizplus · Accepted Answer

An increase in income will cause an increase in money demand as people have more funds available to save or invest. This increase in demand for money will cause interest rates to rise as lenders try to maintain or increase their profits. Therefore, choice A (increase in money demand and interest rates) is the correct answer.

A Business Cycle Expansion Increases Income,causing Money Demand to ________