The nominal interest rate in an economy decreases when
A)the aggregate demand curve shifts to the left.
B)the money supply curve shifts to the left.
C)the aggregate supply curve shifts to the right.
D)the money demand curve shifts to the left.

Question

Quizplus · Accepted Answer

According to the theory of demand and supply of money, a decrease in the money demand curve would increase the supply of money, leading to a decrease in the nominal interest rate. Therefore, when the money demand curve shifts to the left, the nominal interest rate decreases. Choices A, B, and C are incorrect as they do not show the effect of the money demand curve on the nominal interest rate.

The Nominal Interest Rate in an Economy Decreases When