When the money market is drawn with the value of money on the vertical axis,the value of money decreases if
A)either money demand or money supply shifts right.
B)either money demand or money supply shifts left.
C)money demand shifts right or money supply shifts left.
D)money demand shifts left or money supply shifts right.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the value of money is inversely related to the money supply. Therefore, if money supply shifts right, the value of money should decrease. On the other hand, when money demand shifts left, people are willing to hold less money at each level of prices, and they try to spend their money faster. This increase in the velocity of money leads to a decrease in the demand for money, causing the value of money to decrease. Therefore, if money demand shifts left, the value of money should also decrease.

When the Money Market Is Drawn with the Value of Money