A significant decrease in the money supply tends to:

Question

A. reduce the supply of gold held by the federal government.

B. create shortages that would cause prices of goods and services to rise.

C. send the economy into a recession.

D. reduce the size of the federal government's deficit.

Answer 1

C.

It has no effect on gold supply, and would have the opposite effect on pricing of goods and services- deflation. And the government deficiet would not change as both receipts and outlays would be similarly affected.

Deflation can cause recession, as the price of goods and services lower.

Answer 2

B and C . It is use to control the economy and the politicians .

Answer 3

That would be C. When money supply decreases, interest rates (i.e. the cost of borrowing money) goes up. Therefore, many firms cannot afford to borrow as much money as before, and this results in a slowdown of economic activity.

The answer is not B, as one other answer stated. Prices of goods and service would not rise because for inflation to happen, there has to be more demand for goods and services than there was before. This can only happen if interest rates are lowered and money supply increases, meaning money loses some of its value.