An increase in the nominal interest rate creates a ________ the money demand curve, and an increase in real GDP creates a ________ the money demand curve.
A) movement down along; leftward shift of
B) rightward shift of; movement up along
C) movement up along; rightward shift of
D) leftward shift of; rightward shift of

Question

Quizplus · Accepted Answer

An increase in the nominal interest rate causes individuals to hold less money because the opportunity cost of holding money (which earns little or no interest) increases, leading to a movement up along the money demand curve. An increase in real GDP increases the demand for transactions, leading to a rightward shift of the money demand curve as more money is needed to support the higher level of economic activity.

An Increase in the Nominal Interest Rate Creates a ________