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:

CNS

The central nervous system, composed of the brain and spinal cord, which processes and sends out neural signals.

PNS

The Peripheral Nervous System, which consists of the nerves and ganglia outside of the brain and spinal cord.

Cerebrospinal Fluid

The clear, colorless body fluid found in the brain and spinal cord, acting as a cushion and providing nutrients to these areas.

Composition

The act or process of creating or forming by combining parts, elements, or ingredients; can refer to writing, music, art, or any structured endeavor.