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:

Vestibular Duct

A part of the inner ear that is involved in hearing and balance, also known as the scala vestibuli in the cochlea.

Utricle

A sac-like structure in the vestibular system of the inner ear that plays a key role in detecting changes in gravitational forces and linear movements.

Cupula

A gelatinous, dome-shaped structure within the inner ear that responds to changes in rotational acceleration, aiding in balance.

Ampulla

An enlargement or dilatation in a canal or duct, commonly referring to the dilated end of ducts such as the bile duct.