Question

The money demand curve will shift to the left when which of the following occurs? A)...

The money demand curve will shift to the left when which of the following occurs?
A) A reduction in the interest rate
B) An increase in the interest rate
C) An open market sale of bonds by the central bank
D) An increase in income
E) None of the above

Answer I got is E, but just wondering why is it not B? Or is the answer incorrect?


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Homework Answers

Answer #1

answer is option C)

Since money Demand curve is drawn between interest rate & quantity of money.

So when interest rate changes, we move along the demand curve only, thus shifting of the curve occurs only when parameter changes.

Thus option a & b is incorrect.

If income rises,then for any given interest rate, demand for money rises, & hence money Demand curve shifts to right.

Option d is wrong.

If central bank sells the bonds, then it will withdraw the money from the market,hence at any given interest rate, demand for money will fall

& The curve will shift towards left.

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