Question

Read the statement below carefully, and decide whether it is true or false. And then EXPLAIN your answer (whether “true “ or “false”).

A rightward shift in the money supply curve is likely to produce a rightward shift in the money demand curve.

Answer 1

This statement is true. A rightward shift in money supply curve means there is an increase in money supply in the economy. When there more money in the hands of people, they tend to spend more. This increases the aggregate demand. The demand for money can be for several motives as explained by Keynes( transaction, precaution and speculation). An increase in transactions demand for money shifts the money demand curve to the right. Thus we can say that, a rightward shift in the money supply curve is likely to produce a rightward shift in the money demand curve.