In the short run,when the Reserve Bank increases the quantity of money,the
A)demand for money decreases.
B)demand for money increases.
C)quantity demanded of money decreases.
D)price level decreases.
E)nominal interest rate falls.

Question

Quizplus · Accepted Answer

When the Reserve Bank increases the quantity of money, the supply of money in the economy increases. With an unchanged demand for money, this leads to a surplus of money in the market. In order to restore equilibrium, the nominal interest rate falls as individuals are willing to hold onto their money at a lower interest rate. Therefore, choice E is the correct answer.

In the Short Run,when the Reserve Bank Increases the Quantity