When the Fed decreases the money supply,we expect
A)interest rates and stock prices to rise.
B)interest rates and stock prices to fall.
C)interest rates to rise and stock prices to fall.
D)interest rates to fall and stock prices to rise.

Question

Quizplus · Accepted Answer

When the Fed decreases the money supply, it makes borrowing more expensive, which leads to an increase in interest rates. Higher interest rates make it more expensive for businesses to borrow money, which can cause a decrease in investment and a decline in stock prices. Additionally, with less money in circulation, consumers may have less purchasing power, which can lead to a decrease in demand for goods and services, causing further downward pressure on the stock market.

When the Fed Decreases the Money Supply,we Expect