An increase in the supply of cash on the overnight money market will lead to a(n) ____________ in interest rates and a(n)_________ in investment expenditure. a. decrease; decrease b. decrease; increase c. increase; decrease d. increase; increase
Question
An increase in the supply of cash on the overnight money market will lead to a(n) ____________ in interest rates and a(n)_________ in investment expenditure.
a. decrease; decrease
b. decrease; increase
c. increase; decrease
d. increase; increase
Solution
The correct answer is:
b. decrease; increase
An increase in the supply of cash on the overnight money market means that there is more money available for banks to lend to each other. This increased supply of money will lead to a decrease in the interest rate, as banks do not need to charge as much to lend out their excess cash.
Lower interest rates make borrowing cheaper for businesses and households, which can encourage more investment. Therefore, investment expenditure is likely to increase. So, an increase in the supply of cash on the overnight money market will lead to a decrease in interest rates and an increase in investment expenditure.
Similar Questions
Which of the following is a consequence of an increase in the supply of cash in the overnight money market?An increase in interest rates, and eventually an increase in net exports.An increase in interest rates, and eventually a decrease in investment expenditure.A fall in interest rates, and eventually an increase in investment expenditure.A fall in interest rates, and eventually a decrease in net exports.A fall in interest rates, and eventually a decrease in consumption expenditure.
An increase in the money supply, all else held constant, usually _____. increases the interest rate and increases aggregate demand decreases the interest rate and increases aggregate demand decreases the interest rate and decreases aggregate demand increases the interest rate and decreases aggregate demand
In the market for money, an interest rate below equilibrium results in an excess ________money and the interest rate will ________.A) demand for; riseB) demand for; fallC) supply of; fallD) supply of; rise
Which of the following will cause an increase in the interest rate?Multiple select question.A decrease in the demand for money.An increase in the supply of money.An increase in the demand for money.A decrease in the supply of money.
Which of the following will NOT occur if the money supply increases?Multiple choice question.Investment will increaseReal GDP will increaseInterest rates will increaseAggregate expenditure will increase
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.