The transactions demand for money will shift to the
A) left when nominal GDP increases.
B) left when nominal GDP decreases.
C) right when nominal GDP decreases.
D) right when the interest rate increases.

Question

Quizplus · Accepted Answer

According to the Quantity Theory of Money, an increase in nominal GDP will increase the demand for money, while a decrease in nominal GDP will decrease the demand for money. Therefore, the transactions demand for money will shift to the left when nominal GDP decreases (choice B). The interest rate affects the opportunity cost of holding money, but it does not directly impact the transactions demand for money.

The Transactions Demand for Money Will Shift to the