An Increase in the Interest Rate Will Cause

question 26

Multiple Choice

An increase in the interest rate will cause

• A)a reduction in the supply of central bank money.
• B)a reduction in the demand for currency.
• C)a reduction in the demand for reserves.
• D)all of the above
• E) both B and C

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Definitions:

Efficiency Loss

The decrease in economic efficiency that occurs when market conditions prevent the optimal allocation of resources, often caused by market failures or interventions.

Tax

A compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Marginal Benefit

The extra utility or satisfaction gained from the utilization or creation of one more unit of a product or service.

Marginal Cost

The increase in total cost that arises from producing one additional unit of a product or service, reflecting changes in variable costs.