-In the above figure, suppose the economy is initially on the demand for money curve MD₁. What is the effect of a rise in the nominal interest rate? A) The demand for money curve would shift rightward to MD₂. B) The demand for money curve would shift leftward to MD₀. C) There would be a movement upward along the demand for money curve MD₁. D) There would be a movement downward along the demand for money curve MD₁.

Question

Quizplus · Accepted Answer

A rise in the nominal interest rate does not shift the demand for money curve but causes a movement along the curve. Specifically, it results in a movement upward along the existing demand for money curve as people will demand less money at higher interest rates.

-In the Above Figure, Suppose the Economy Is Initially on the Demand