Question

Given a fixed supply of money and a downward sloping aggregate demand curve, an increase in money demand will ________ the price paid for its use, otherwise known as the ______. Multiple choice question. not change; interest rate raise; interest rate lower; interest rate lower; discount rate raise; discount rate

Answer 1

Money supply is the total amount of money in circulation which includes coins, cash and balance in savings account in a country at a period of time.

• Given a fixed supply of money and a downward sloping aggregate demand curve, an increase in money demand will not change the price paid for its use, otherwise known as the discount rate.

• A change the money supply in a country causes a change in aggregate demand.

• An increase in the money supply causes increase in aggregate demand and a decrease in the money supply causes decrease in aggregate demand.

Therefore, an increase in money demand will not change the price paid for its use, otherwise known as the discount rate.

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