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JAMB Economics 2013 Question 30

Question 30

Money and Inflation

If CBN reduces money supply, the interest rate will

  1. A.fluctuate.
  2. B.rise.
  3. C.fall.
  4. D.remain unchanged.
Show the answer and explanation

Answer: B (rise.)

Explanation

Less money available for lending makes money scarcer, so its price (the interest rate) rises.