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- Subject
- Macroeconomic Policy Toolseconomics-mcqs › macroeconomic-policy-tools
- Published
- 31 May 2019
- Last updated
- 28 May 2026
Explanation
When the interest rate goes up, holding everything else constant, the opportunity cost of holding money increases. As a result, people reduce the amount of money they want to hold, leading to a decrease in the quantity of money demanded. This is a movement along the demand curve, not a shift in demand.
More Macroeconomic Policy Tools MCQs
Practice related questions from the same subject.
- 1.Which of the following functions as an automatic economic stabilizer?
- 2.If the government raises its spending by Rs16 billion and the multiplier effect outweighs the crowding out effect, what will be the impact on the economy?
- 3.Which economic phenomenon is illustrated when higher government spending boosts income, shifts the demand for money to the right, increases interest rates, and consequently reduces investment?
- 4.What is the effect of an increase in the marginal propensity to consume (MPC) on the multiplier?
- 5.What is the immediate effect of a rise in government expenditure on the economy?
- 6.What is the primary impact of an increase in the money supply?
- 7.In the context of Eurozone nations, which factor is most likely responsible for the downward slope of the aggregate demand curve?
- 8.How does an increase in the money supply affect the aggregate demand curve?
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