The money demand curve will shift to the left if:
A) the nominal interest rate increases.
B) the nominal interest rate decreases.
C) price level increases.
D) the price level decreases.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, the demand for money is directly related to the level of prices in the economy. If the price level decreases, people would need less money to carry out their transactions, and therefore the demand for money would decrease, shifting the money demand curve to the left. Factors A and B are incorrect because they relate to changes in nominal interest rates, which would affect the position on the same demand curve rather than shifting it.

The Money Demand Curve Will Shift to the Left If