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Chapter 14: Problem 34

A decrease in the rate of growth in the moncy supply will tend to interest rates and the level of investment. ( \(\mathrm{LO} 4)\) a) raise, raise b) lower, lower c) lower, raise d) raise, lower

Short Answer

Expert verified
A decrease in the rate of growth in the money supply will tend to raise interest rates and lower the level of investment. Therefore, the correct option is d) raise, lower.

Step by step solution

01

Understand the concept of money supply growth and interest rates

Money supply growth refers to the rate (%) at which the amount of money circulating in the economy increases. When the growth rate is higher, it means more money is being circulated, leading to lower interest rates. When the growth rate is lower, the money supply is tighter and leads to higher interest rates.
02

Analyze the relationship between interest rates and investment levels

When interest rates are lower, it is more affordable for businesses and consumers to borrow money for investments, leading to higher investment levels. On the other hand, when interest rates are higher, borrowing becomes more expensive, which may result in lower investment levels.
03

Combine the relationships to find the correct option

A decrease in the rate of growth in the money supply will tend to increase interest rates (as there's less money circulating in the economy). Higher interest rates make borrowing more expensive, leading to lower investment levels in the economy. Therefore, the correct option is: d) raise, lower

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Most popular questions from this chapter

To buy sccuritics, the Fed offers \(\cdot(\mathrm{LO5})\) a) a low price and drives up interest rates b) a low price and drives down interest rates c) a high price and drives up interest rates d) a high price and drives down interest rates

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The subprime lending mess was caused by (LO9) a) the lowered lending standards of mortgage brokers. b) the Federal Reserve's lowering of interest rates. c) both the lowered lending standards of mortgages brokers and the Federal Reserve's lowering of interest rates. d) neither the lowered lending standards of mortgage brokers nor the Federal Reserve's lowering of interest rates.

Faster monetary growth tends to \((\mathrm{I} O 4)\) a) lower interest rates, leading to lower investment b) lower interest rates, leading to higher investment c) raise interest rates, leading to lower investment d) raise interest rates, leading to higher investment
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