If There Is a General Shortage of Liquidity in the Money

question 41

Multiple Choice

If there is a general shortage of liquidity in the money market then

• A) the long-term interest rate in the economy will rise and the central bank will raise its interest rate in response.
• B) the economy's banking system will lend more money to households and firms.
• C) the short-term interest rate at which the economy's commercial banks lend to and borrow from each other will fall and the central bank may be expected to reduce the supply of liquidity to the banks.
• D) the short-term interest rate at which the economy's commercial banks lend to and borrow from each other will rise and the central bank may be expected to increase the supply of liquidity to the banks.

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