How Does an Increase in the Short-Term Interest Rate Affect

question 99

Multiple Choice

How does an increase in the short-term interest rate affect peoples' desire to hold real money balances?

• A) People will hold more money to compensate for the higher interest rate.
• B) People will hold more money in anticipation of higher inflation.
• C) People will hold less money since they would be sacrificing more interest by holding money.
• D) People will hold less money since it is not worth as much.

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Definitions:

Constitutional Government

A system of government where the powers and limits of the government are defined and regulated by a constitution.

Legal Limits

Boundaries set by law that determine what is permissible or impermissible in society, often enforced by judicial or law enforcement agencies.

Voting

The act of formally expressing one's choice or opinion in a decision-making process, typically in elections or referendums.

Bourgeoisie

The middle-class segment, particularly those with capitalistic interests and values, in a society.