Which of the following decreases the demand for nominal money?
A) an increase in real GDP
B) a decrease in the price level
C) an increase in the quantity of money
D) a decrease in the nominal interest rate

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the demand for nominal money is proportional to the price level. Therefore, a decrease in the price level will decrease the demand for nominal money. The other choices may increase the demand for nominal money: A) an increase in real GDP leads to an increase in the demand for money; C) an increase in the quantity of money increases the supply of money, which may lead to an increase in demand for goods and services, and therefore, an increase in the demand for money; D) a decrease in the nominal interest rate reduces the opportunity cost of holding money, and therefore, may lead to an increase in the demand for money.

Which of the Following Decreases the Demand for Nominal Money