Suppose Money Supply Decreases, Causing the Interest Rate to Rise

question 16

Multiple Choice

Suppose money supply decreases, causing the interest rate to rise.What is the effect on GDP?  

• A) GDP decreases by more than the increase in the interest rate because of the multiplier. 
• B) GDP decreases by the same amount as the decrease in investment. 
• C) GDP decreases by more than the decrease in investment because of the multiplier. 
• D) GDP decreases by less than the decrease in investment because of the multiplier.

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Definitions:

Trauma

A deeply distressing or disturbing experience that can lead to physical, emotional, or psychological harm.

Iconic Memory

A fast-decaying store of visual information; a component of the sensory memory that briefly holds images.

Echoic Memory

A type of sensory memory that holds auditory information for a few seconds after the sound is made.

Consolidation

The process by which memories become stable in the brain, transforming from a short-term to a long-term state.