Which of the following would cause an unambiguous decrease in nominal interest rates?

Choose 1 answer:
(A) Aggregate demand increases
(B) People are able to access money more easily
(c) Households sell bonds
(D) A decrease in the monetary base
(E) An increase in the price level

Question

Which of the following would cause an unambiguous decrease in nominal interest rates?

Choose 1 answer:
(A) Aggregate demand increases
(B) People are able to access money more easily
(c) Households sell bonds
(D) A decrease in the monetary base
(E) An increase in the price level

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ To determine the effect on nominal interest rates, we must understand the relationship between the supply and demand for money. ‖ ‖ step 2 ⋮ An increase in aggregate demand (A) typically leads to higher prices and potentially higher interest rates, not a decrease. ‖ ‖ step 3 ⋮ If people can access money more easily (B), this implies an increase in the money supply, which can lead to lower nominal interest rates. ‖ ‖ step 4 ⋮ Households selling bonds (C) would increase the supply of bonds and decrease their price, leading to higher interest rates. ‖ ‖ step 5 ⋮ A decrease in the monetary base (D) would lead to a decrease in the money supply, which would typically increase interest rates. ‖ ‖ step 6 ⋮ An increase in the price level (E) is associated with inflation, which often leads to higher nominal interest rates. ‖ ‖ step 7 ⋮ The only option that unambiguously leads to a decrease in nominal interest rates is when the money supply increases, making money more accessible (B). ‖ ∻Answer∻ ***B*** ∻Key Concept∻ ⚹Money Supply and Interest Rates⚹ ∻Explanation∻ ⚹An increase in the money supply, assuming demand remains constant, typically leads to lower nominal interest rates.⚹◊What is the probability of randomly selecting the answer choice that would cause an unambiguous decrease in nominal interest rates?⍭ Generate me a similar question◊

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