Which of the following shifts in the demand for money or the supply of money is most likely to occur as the result of a recession?
A)The demand curve shifts leftward.
B)The demand curve shifts rightward.
C)The supply curve shifts rightward.
D)Both the demand and supply curves shift rightwarD.The demand curve is most likely to shift leftward because incomes typically fall during recessions.

Question

Quizplus · Accepted Answer

During a recession, incomes typically fall and people have less purchasing power, leading to a decrease in the demand for money. This results in a leftward shift of the demand curve, as people demand less money at each interest rate. The supply of money does not necessarily change during a recession, so options C and D are not likely to occur. Option B, a rightward shift of the demand curve, is not likely as it implies that people would demand more money at each interest rate despite having less purchasing power.

Which of the Following Shifts in the Demand for Money