What happens to the nominal interest rate and the quantity of money in the money supply if the demand for money increases?

Choose 1 answer:
(A) Nominal interest rate increases; the quantity of money increases.
(B) Nominal interest rate decreases; the quantity of money increases.
(c) Nominal interest rate decreases; no change in the quantity of money.
(D) Nominal interest rate increases; no change in the quantity of money.
(E) Nominal interest rate increases; the quantity of money decreases.

Question

What happens to the nominal interest rate and the quantity of money in the money supply if the demand for money increases?

Choose 1 answer:
(A) Nominal interest rate increases; the quantity of money increases.
(B) Nominal interest rate decreases; the quantity of money increases.
(c) Nominal interest rate decreases; no change in the quantity of money.
(D) Nominal interest rate increases; no change in the quantity of money.
(E) Nominal interest rate increases; the quantity of money decreases.

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ When the demand for money increases, the nominal interest rate typically increases because people are willing to pay more to hold money. ‖ ‖ step 2 ⋮ The quantity of money in the money supply is usually controlled by the central bank and does not change automatically with the demand for money. ‖ ‖ step 3 ⋮ Therefore, the correct answer is the one where the nominal interest rate increases and the quantity of money does not change. ‖ ***D*** ∻Key Concept∻ ⚹Relationship between money demand and nominal interest rate⚹ ∻Explanation∻ ⚹An increase in the demand for money leads to a higher nominal interest rate, while the quantity of money in the money supply remains unchanged unless the central bank intervenes.⚹◊What statistical analysis can be used to determine the relationship between the demand for money and the nominal interest rate?⍭ Generate me a similar question◊

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