Which of the following increases the quantity of money demanded?
A)A rise in the inflation rate
B)A fall in the nominal interest rate
C)An increase in real GDP
D)A rise in the real interest rate
E)A rise in the nominal interest rate

Question

Quizplus · Accepted Answer

A fall in the nominal interest rate reduces the opportunity cost of holding money, making it more attractive to hold cash balances and thereby increasing the quantity of money demanded. A rise in inflation rate would decrease the real value of money holdings, deterring money demand. An increase in real GDP would increase income and income velocity of money; consequently, the demand for money depends on income demand and velocity. A rise in the real interest rate also increases the opportunity cost of holding money while a rise in nominal interest rate can create confusion since it depends on the inflation rate's magnitude.

Which of the Following Increases the Quantity of Money Demanded