All of the following decrease nominal interest rates EXCEPT:
Choose 1 answer:
(A) Banks reduce their holdings of excess reserves.
(B) Reducing the reserve requirement.
(C) Improvements in banking technology
(D) People start keeping more money outside of banks
(E) The aggregate price level decreases.

Question

Accepted Answer

∻Solution∻ ‖ a ⋮ Banks reduce their holdings of excess reserves: When banks reduce their excess reserves, they have more funds available to lend, increasing the money supply and potentially lowering nominal interest rates. ‖ ‖ b ⋮ Reducing the reserve requirement: Lowering the reserve requirement means banks can lend more of their deposits, increasing the money supply and reducing nominal interest rates. ‖ ‖ c ⋮ Improvements in banking technology: Technological advancements can make banking more efficient, increasing the money supply and reducing nominal interest rates. ‖ ‖ d ⋮ People start keeping more money outside of banks: If people hold more money outside of banks, the money supply decreases, leading to higher nominal interest rates. ‖ ‖ e ⋮ The aggregate price level decreases: A decrease in the aggregate price level can reduce the demand for money, leading to lower nominal interest rates. ‖ ∻Answer∻ ⚹ D) People start keeping more money outside of banks ⚹ ∻Key Concept∻ ⚹ Factors affecting nominal interest rates ⚹ ∻Explanation∻ ⚹ The correct answer is D) People start keeping more money outside of banks. This action decreases the money supply, leading to higher nominal interest rates, unlike the other options which all contribute to lowering nominal interest rates. ⚹◊What are the effects of a decrease in nominal interest rates on aggregate demand in the economy from a microeconomic perspective⍭ Generate me a similar question◊

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