Question

Which of the following events would shift money demand to the left? a. an increase in...

Which of the following events would shift money demand to the left?

a. an increase in the interest rate or an increase in the price level

b. an increase in the interest rate, but not an increase in the price level

c. an increase in the price level, but not an increase in the interest rate

d. neither an increase in the interest rate nor an increase in the price level

Please explain why it is not an increase in the interest rate?

Homework Answers

Answer #1

Option d

d. neither an increase in the interest rate nor an increase in the price level

A money demand depicts a negative relationship between the interest rate and the quantity of money demanded. change in interest rate is a movement along the demand curve. An increase in the price level increases the money demand and shifts it to right. A decrease in the price level shifts the money demand curve to left as the consumption decreases and money demand decreases.

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