A decrease in the money supply causes the interest rate to rise so that investment falls.

Question

Quizplus · Accepted Answer

A decrease in the money supply typically leads to higher interest rates as there is less money available for borrowing. Higher interest rates make borrowing more expensive, which can lead to a decrease in investment since businesses and individuals are less likely to take out loans for investment purposes when it costs more to do so.

A Decrease in the Money Supply Causes the Interest Rate