Which of the following would cause a downward movement along the money demand curve?
A) an increase in the interest rate
B) a decrease in the interest rate
C) a decrease in real GDP
D) an increase in real GDP

Question

Which of the following would cause a downward movement along the money demand curve?  
A) an increase in the interest rate 
B) a decrease in the interest rate 
C) a decrease in real GDP 
D) an increase in real GDP

Quizplus · Accepted Answer

According to the theory of money demand, a decrease in the interest rate would cause a downward movement along the money demand curve. This is because at a lower interest rate, the opportunity cost of holding money decreases, so people would want to hold more money. A decrease in real GDP (choice C) or an increase in real GDP (choice D) would shift the entire money demand curve, rather than causing a movement along the curve. An increase in the interest rate (choice A) would cause an upward movement along the money demand curve, as the opportunity cost of holding money would increase.

Which of the Following Would Cause a Downward Movement Along