Refer to the above table.Suppose the transactions demand for money is $300 billion and the money supply is $700 billion.A decrease in the money supply to $600 billion would cause the interest rate to:
A)rise to 7 percent.
B)rise to 6 percent.
C)fall to 4 percent.
D)fall to 5 percent.

Question

Refer to the above table.Suppose the transactions demand for money is $300 billion and the money supply is $700 billion.A decrease in the money supply to $600 billion would cause the interest rate to:
A)rise to 7 percent. 
B)rise to 6 percent. 
C)fall to 4 percent. 
D)fall to 5 percent.

Quizplus · Accepted Answer

According to the table, when the money supply is $700 billion, the interest rate is 5 percent. If the money supply decreases to $600 billion, the new equilibrium point would be at point B, where the interest rate is 6 percent. Therefore, the answer is B, as the interest rate would rise to 6 percent with a decrease in the money supply to $600 billion.

Refer to the Above Table