Sia
Question
Statistics
Posted 5 months ago
The development of online banking has made it easier for people to move wealth to cash from other forms of assets.
What change would counteract the effect of this on the nominal interest rate?
Choose 1 answer:
(A) A decrease in the money supply.
(B) Banks reduce their holdings of excess reserves.
(c) The central bank lowers the reserve requirement.
(D) The demand for money decreases.
(E) There is lower inflation.
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Answer from Sia
Posted 5 months ago
Solution by Steps
step 1
The development of online banking makes it easier for people to move wealth to cash from other forms of assets. This increases the demand for money
step 2
An increase in the demand for money, with the money supply held constant, would typically lead to an increase in the nominal interest rate
step 3
To counteract this effect, we need a change that would decrease the demand for money or increase the money supply
step 4
Among the given options, a decrease in the demand for money would directly counteract the effect of increased demand due to online banking
D
Key Concept
Demand for money and nominal interest rate relationship
Explanation
A decrease in the demand for money would counteract the effect of increased demand due to online banking, stabilizing the nominal interest rate.
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