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Question
Statistics
Posted 5 months ago
Which of the following would cause an unambiguous decrease in nominal interest rates?
Choose 1 answer:
(A) An increase in the price level
(B) A decrease in the monetary base
(C) Aggregate demand increases
(D) Households sell bonds
(E) People are able to access money more easily
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Answer from Sia
Posted 5 months ago
Solution by Steps
step 1
To determine which option would cause an unambiguous decrease in nominal interest rates, we need to analyze the effects of each option on the money market
step 2
Option (A) An increase in the price level: An increase in the price level typically increases the demand for money, which can lead to higher nominal interest rates
step 3
Option (B) A decrease in the monetary base: A decrease in the monetary base reduces the supply of money, which can lead to higher nominal interest rates
step 4
Option (C) Aggregate demand increases: An increase in aggregate demand can lead to higher economic activity and potentially higher nominal interest rates due to increased demand for money
step 5
Option (D) Households sell bonds: When households sell bonds, they are likely to increase their demand for money, which can lead to higher nominal interest rates
step 6
Option (E) People are able to access money more easily: If people can access money more easily, the demand for money decreases, leading to lower nominal interest rates
Answer
(E) People are able to access money more easily
Key Concept
Easier access to money decreases the demand for money.
Explanation
When people can access money more easily, the demand for money decreases, leading to a decrease in nominal interest rates.
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