When the Interest Rate Falls

question 37

Multiple Choice

When the interest rate falls:

• A) the opportunity cost of holding money rises.
• B) people shift out of holding interest-yielding assets and hold more of their wealth in the form of money.
• C) the quantity of money people will hold decreases.
• D) investment spending decreases.

---

Definitions:

Producer Surplus

The difference between the amount producers are willing to accept for a good or service and the actual price they receive.

Below Equilibrium Price

A situation where the price of a good or service is set lower than the market equilibrium, often leading to a shortage.

Market Failure

A situation in which the allocation of goods and services by a free market is not efficient, often due to externalities, monopolies, or information asymmetries.

Efficient Outcome

An optimal allocation of resources where it is impossible to improve one party's position without worsening another's, often associated with maximized total welfare or utility in an economic context.