Since 1970, as a percent of GDP, M1 held has steadily decreased.Which of the following can account for this fact?
A) Real GDP has increased since 1970.
B) The price level has risen since 1970.
C) Credit cards have become more widely available since 1970.
D) The nominal interest rate has steadily risen since 1970.
E) The nominal interest rate has steadily fallen since 1970.

Question

Quizplus · Accepted Answer

The fact that M1 held has steadily decreased since 1970 can be attributed to the increased availability and use of credit cards. This means that people are relying more on credit cards for transactions instead of carrying cash, which decreases the demand for M1. Real GDP (A) and the price level (B) may impact the overall level of M1, but they don't explain the steady decrease. The nominal interest rate (D, E) may impact the demand for money in general, but they don't explain the specific trend of decreasing M1 held as a percent of GDP.

Since 1970, as a Percent of GDP, M1 Held Has