The introduction of credit cards in a CLOSED economy reduces the demand for real money balances at each level of the interest rate. Assume the economy starts off at the full-employment level of output (long-run aggregate supply). In the short run, suppose prices are completely fixed. Then: A. both real money balances and the interest rate decrease. B. real money balances stay the same, and the interest rate decreases. C. real money balances decrease, and the interest rate stays the same. D. both real money balances and the interest rate stay the same. Which is the right answer?
The introduction of credit cards in a CLOSED economy reduces the demand for real money balances at each level of
the interest rate. Assume the economy starts off at the full-employment level of output (long-run aggregate supply).
In the short run, suppose prices are completely fixed. Then:
A. both real money balances and the interest rate decrease.
B. real money balances stay the same, and the interest rate decreases.
C. real money balances decrease, and the interest rate stays the same.
D. both real money balances and the interest rate stay the same.
Which is the right answer?
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