Question

If the Federal Reserve decreased the money supply, what would the effects be? Check all that apply.

Answer 1

Answer:

If the Federal Reserve decreases the money supply, it would result in increased interest rates, decreased borrowing, and decreased investing.

Explanation:

• The decreasing of money supply by the Federal Reserve would lead to the shortage of printed money in the market. To make optimum use of the money available, the banks would increase the interest rates.
• The increased interest rates would refrain people from borrowing money from the banks as they would not be willing to pay back more.
• When there would be no money or less money in people's hands, they would be unable to invest elsewhere.