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If the Federal Reserve contracts the money supply, then interest rates will _____, and GDP will _____.

User Channi
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Answer:

Interest rates will rise and GDP will fall

Step-by-step explanation:

If the money supply falls, that makes money more valuable because there's less of it to go around. Interest rates will reflect this change in the value of money, with interest rates increasing because with money more valuable, there will be a greater opportunity cost to lending money. GDP, in turn, will fall, because money is one half of all economic transactions and so a decrease in the money supply necessarily decreases the number of economic transactions made.

User Kitimenpolku
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