Which one of the following factors would reduce the quantity of money balances that households would want to hold?
A) higher prices
B) a rise in inflation
C) higher nominal interest rates
D) an expansion in nominal income (nominal GDP)

Question

Quizplus · Accepted Answer

An increase in nominal interest rates would make saving more attractive and borrowing more expensive, which would reduce the quantity of money households want to hold. Higher prices (A) and a rise in inflation (B) would increase the quantity of money households want to hold as they would need more money to transact the same amount of goods and services. An expansion in nominal income (D) would not necessarily reduce the quantity of money balances that households want to hold, as it depends on how much of their income they want to hold as money balances.

Which One of the Following Factors Would Reduce the Quantity