The most important variable affecting the demand for money in the long run is the:
A) nominal interest rate
B) real interest rate
C) price level
D) velocity of money

Question

The most important variable affecting the demand for money in the long run is the: 
A) nominal interest rate
B) real interest rate
C) price level
D) velocity of money

Quizplus · Accepted Answer

The demand for money in the long run is mainly affected by the price level, as people tend to hold a certain amount of money to meet their needs. As the price level increases over time, people would need more money to buy goods and services, thereby increasing the demand for money in the long run. The nominal and real interest rates can affect the demand for money in the short run but not in the long run. The velocity of money is an indicator of how fast money is being circulated in the economy, but it does not affect the demand for money directly.

The Most Important Variable Affecting the Demand for Money in the Long