Answer to Question #88813 in Macroeconomics for thulisile

Question

The decrease in the money supply will lead to:
1. a decrease in the nominal interest rate.
2. a decrease in the real interest rate.
3.an increase in the real interest rate.
4.an increase in the nominal interest rate
5. none of the above.

Answer 1

Answer- 4.

The decrease in the money supply will lead to an increase in the nominal interest rate

All else being equal, a larger money supply lowers market interest rates. Conversely, smaller money supplies tend to raise market interest rates. The current level of liquid money (supply) coordinates with the total demand for liquid money (demand) to help determine interest rates.

A nominal interest rate is the interest rate that does not take inflation into account. It is the interest rate quoted on bonds and loans. 

https://www.investopedia.com/ask/answers/040715/how-does-money-supply-affect-interest-rates.asp

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