kaishat4390 kaishat4390
  • 11-03-2022
  • Business
contestada

If the Federal Reserve contracts the money supply, then interest rates will _____, and GDP will _____.

Respuesta :

waltereucken91 waltereucken91
  • 11-03-2022

Answer:

Interest rates will rise and GDP will fall

Explanation:

If the money supply falls, that makes money more valuable because there's less of it to go around. Interest rates will reflect this change in the value of money, with interest rates increasing because with money more valuable, there will be a greater opportunity cost to lending money. GDP, in turn, will fall, because money is one half of all economic transactions and so a decrease in the money supply necessarily decreases the number of economic transactions made.

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