A change in financial technology that reduces the need to hold large cash balances ________ the demand for money and ________ the equilibrium nominal interest rate.
A) increases; raises
B) increases; lowers
C) decreases; raises
D) decreases; lowers
E) decreases; does not change

Question

Quizplus · Accepted Answer

When the need to hold large cash balances reduces, people will have less demand for money because they can use other financial technology (such as mobile payments or credit cards) instead. This decrease in demand for money shifts the demand curve for money to the left, leading to a decrease in the equilibrium nominal interest rate. Therefore, the correct answer is option D, which states that a change in financial technology that reduces the need to hold large cash balances decreases the demand for money and lowers the equilibrium nominal interest rate.

A Change in Financial Technology That Reduces the Need to Hold