A decline in the expected inflation rate causes the demand for money to ________ and the demand curve to shift to the ________,everything else held constant.
A) decrease; right
B) decrease; left
C) increase; right
D) increase; left

Question

Quizplus · Accepted Answer

According to the Quantity Theory of Money, the demand for money is influenced by the expected inflation rate. When the expected inflation rate declines, people tend to hold less money because they expect the purchasing power of money to increase. Therefore, the demand for money decreases and the demand curve shifts to the left.

A Decline in the Expected Inflation Rate Causes the Demand