In which of the following cases would the quantity of money demanded be largest?
A)r = 0.03,P = 1.2
B)r = 0.03,P = 1.3
C)r = 0.04,P = 1.2
D)r = 0.05,P = 0.9

Question

Quizplus · Accepted Answer

The quantity of money demanded is positively related to the price level and negatively related to the interest rate. Therefore, the largest quantity of money demanded would occur when the interest rate is lower (in this case, all options have the same interest rate of 0.03) and the price level is higher. Option B has the highest price level (P = 1.3) among the given choices, so it would result in the largest quantity of money demanded.

In Which of the Following Cases Would the Quantity of Money