In the United States, the demand curve for M1 after 1970 shifted leftward as a result of and shifted rightward as a result of .
A) a decrease in real GDP; financial innovation
B) financial innovation; an increase in real GDP
C) an increase in interest rates; an increase in real GDP
D) an increase in the price level; financial innovation

Question

Quizplus · Accepted Answer

Financial innovation, such as the creation of new financial instruments like money market mutual funds, allowed individuals and businesses to hold funds in alternative assets that were not included in M1. This caused a leftward shift in the demand curve for M1 after 1970. However, as the economy grew and real GDP increased, the demand for money increased, causing a rightward shift in the demand curve for M1.

In the United States, the Demand Curve for M1 After