Reducing currency supply by borrowing more leads to what outcome?

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Multiple Choice

Reducing currency supply by borrowing more leads to what outcome?

Explanation:
When the government borrows more, it pulls money out of the economy to fund deficits. People buy more government bonds with cash, so cash in circulation falls. With less money circulating, liquidity tightens, and lenders require higher returns to lend, pushing interest rates up. So the immediate effect is less money in circulation, and the consequence is higher interest rates as the market clears at a higher cost of borrowing. The other outcomes would follow from expanding money supply or different price dynamics, which isn’t what's described here.

When the government borrows more, it pulls money out of the economy to fund deficits. People buy more government bonds with cash, so cash in circulation falls. With less money circulating, liquidity tightens, and lenders require higher returns to lend, pushing interest rates up. So the immediate effect is less money in circulation, and the consequence is higher interest rates as the market clears at a higher cost of borrowing. The other outcomes would follow from expanding money supply or different price dynamics, which isn’t what's described here.

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