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UPSC 2013: Supply of money remaining the same when there is an increase in demand for money, there will be
(a)a fall in the level of prices
(b)an increase in the rate of interest
(c)a decrease in the rate of interest
(d)an increase in the level of income and employment
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Not attemptedCorrect Answer: (b) an increase in the rate of interest
With the quantity of money fixed, an increase in the public’s desire to hold money creates an excess demand for money balances. The adjustment comes through a rise in the market rate of interest, which rations the now-scarcer liquidity until money demand again equals supply. Keynesian and modern IS–LM presentations therefore show the interest rate moving up when money demand shifts right, exactly as stated in option (b). ([britannica.com](https://www.britannica.com/money/economic-stabilizer/Interest-rate-policy?utm_source=openai))
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Frequently Asked Questions
What is the correct answer to this UPSC 2013 Indian Economy question?▼
The correct answer is option (b): an increase in the rate of interest. Watch the detailed video explanation in our Sherlocking Prelims course on UnlockIAS.
Which year was this Monetary Policy & Money Supply question asked in UPSC Prelims?▼
This question was asked in UPSC CSE Prelims 2013, GS Paper 1, as Question 85. It falls under Indian Economy > Monetary Policy & Money Supply.
What is the difficulty level of this UPSC question?▼
This question is rated "moderate". It requires sound conceptual understanding of the topic.
How many UPSC Prelims questions have been asked from Monetary Policy & Money Supply?▼
UPSC has asked 27 questions from Monetary Policy & Money Supply (under Indian Economy) across multiple years. Visit the topic page to see the full list and year-wise trends.