Which of the following statements is correct? Other things equal,
A) a decline in real output will shift both the transactions demand curve for money and the total money demand curve to the right.
B) a decline in the interest rate will shift the asset demand curve for money to the right but leave the total money demand curve unchanged.
C) deﬂation will shift both the transactions demand curve for money and the total money demand curve to the left.
D) inﬂation will shift the transactions demand curve for money to the right but leave the total money demand curve unchanged.

Question

Quizplus · Accepted Answer

Deflation, which is a decrease in the overall price level, will lower the amount of money needed for transactions and thus shift the transactions demand curve for money to the left. At the same time, deflation will reduce the overall demand for money as people will need less money overall. This will shift the total money demand curve to the left as well. The other statements are incorrect because they do not accurately represent the effects on the demand for money.

Which of the Following Statements Is Correct? Other Things Equal