Question

The Fed decreasesdecreases the quantity of money. In the short​ run, the quantity of money demanded​ ______ and the nominal interest rate​ ______.

A. decreasesdecreases​; fallsfalls
B. decreasesdecreases​; risesrises
C. increasesincreases​; fallsfalls
D. decreasesdecreases​; does not change
E. increasesincreases​; risesrises

Answer 1

B decreases; rises

Step-by-step explanation:

This is a shift to the left in the supply curve therefore, quantity decrease and price rises. In this case, as we are referring to the money market the interest rates rises. As interest regulates the investment and consumption in the economy people will prefer to save more given the rise in interest rate therefor consumption will also decay making the aggregate demand to adjust for the new interest rate.