Question

In which direction will the transaction demand for money curve shift? Right when interest rate increases....

In which direction will the transaction demand for money curve shift?

  • Right when interest rate increases.

  • Right when nominal GDP increases.

  • Left when nominal GDP increases.

  • Left when the interest rate decreases.

  • Right when nominal GDP decreases.

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Answer #1

The correct option is B-right when nominal GDP increases.

As GDP increases, there are more transactions in the economy and hence the transaction demand increases. This means that the transaction demand curve shifts to the right.

As far as interest rates are concerned, they have an opposite effect on transaction deamand of money. As interest rates increase, the transaction demand falls and vice versa. So all other given options are wrong except B.

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