In the money market, if nominal interest rates have increased and the quantity of money decreased, which of the following could have caused this change?

Choose 1 answer:
(A) The demand for money decreased.
(B) The money supply increased and the money demand decreased.
(c) The money supply increased.
(D) The money supply decreased.
(E) The demand for money increased.

Question

In the money market, if nominal interest rates have increased and the quantity of money decreased, which of the following could have caused this change?

Choose 1 answer:
(A) The demand for money decreased.
(B) The money supply increased and the money demand decreased.
(c) The money supply increased.
(D) The money supply decreased.
(E) The demand for money increased.

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ To understand the relationship between nominal interest rates and the quantity of money, we need to consider the money market equilibrium, which is determined by the intersection of the money demand and money supply curves. ‖ ‖ step 2 ⋮ An increase in nominal interest rates typically indicates a shift in either the money demand or money supply curve. ‖ ‖ step 3 ⋮ A decrease in the quantity of money suggests a leftward shift in the money supply curve. ‖ ‖ step 4 ⋮ Therefore, the most likely cause of an increase in nominal interest rates and a decrease in the quantity of money is a decrease in the money supply. ‖ ***D*** ∻Key Concept∻ ⚹Money market equilibrium⚹ ∻Explanation∻ ⚹A decrease in the money supply leads to higher nominal interest rates and a lower quantity of money in the market.⚹◊What statistical analysis could be used to determine the relationship between nominal interest rates and the quantity of money in the money market?⍭ Generate me a similar question◊

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