Which of the following shifts money demand to the left?
A) an increase in the price level and the interest rate
B) an increase in the price level and a decrease in the interest rate
C) a decrease in the price level but not a change in the interest rate
D) an increase in the interest rate but not a change in the price level

Question

Quizplus · Accepted Answer

A decrease in the price level (deflation) increases the purchasing power of money, making people buy more goods and services with the same amount of money. This, in turn, reduces the quantity of money demanded at any given interest rate, shifting the money demand curve to the left. The other options either involve an increase in the price level (A and B) or an increase in the interest rate (D), both of which would shift money demand to the right.

Which of the Following Shifts Money Demand to the Left