Question: I . There is a negative relationship between the quantity of money demanded and the interest rate. An increase in the supply of money, according

I . There is a negative relationship between the quantity of money demanded and the interest rate. An increase in the supply of money, according to Keynesian theory, will cause people to use their excess money balances to buy bonds. Bond prices will rise, and the interest rate will decline, at least in the short run. On the other hand, restrictive monetary policy will cause the interest rate to rise in the short run.

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