Refer to the diagram below for the market for money.Other things equal, the money demand curve in the diagram would shift leftward if:
A)the asset demand for money increased.
B)the transactions demand for money increased.
C)nominal GDP decreased.
D)the overall price level rose.

Question

Refer to the diagram below for the market for money.Other things equal, the money demand curve in the diagram would shift leftward if: 
A)the asset demand for money increased. 
B)the transactions demand for money increased. 
C)nominal GDP decreased. 
D)the overall price level rose.

Quizplus · Accepted Answer

The money demand curve represents the relationship between the quantity of money demanded and the interest rate, with other factors held constant. One of those factors is nominal GDP, which represents the total spending in the economy. If nominal GDP decreases, then the transactions demand for money (i.e. the demand for money to carry out transactions) will also decrease, causing the money demand curve to shift leftward. Options A and B are incorrect as they both involve an increase in money demand, rather than a decrease. Option D is also incorrect, as a rise in the overall price level would typically correspond with an increase in money demand.

Refer to the Diagram Below for the Market for Money