In October of 2015, the interest rate on money market accounts was about 0.2 percent. In 2007, the interest rate on money market accounts was about 4.0 percent. What has been the impact on the demand for money curve from this fall in the interest rate?
A) the money demand curve shifted to the right
B) the money demand curve shifted to the left
C) there was a downward movement along the demand for money curve
D) there was an upward movement along the demand for money curve

Question

Quizplus · Accepted Answer

A decrease in the interest rate from 4.0 percent to 0.2 percent makes holding money more attractive relative to saving, as the opportunity cost of holding money (foregone interest) is lower. This situation is represented by a downward movement along the demand for money curve, not a shift of the curve itself. Shifts in the demand curve would be caused by factors other than changes in the interest rate, such as changes in income or wealth.

In October of 2015, the Interest Rate on Money Market