The quantity of money demanded varies ____ with the nominal interest rate, but the supply of money is almost perfectly ____ with respect to nominal interest rates.
A)inversely; elastic
B)directly; elastic
C)inversely; inelastic
D)directly; inelastic

Question

The quantity of money demanded varies ____ with the nominal interest rate, but the supply of money is almost perfectly ____ with respect to nominal interest rates.
A)​inversely; elastic
B)​directly; elastic
C)​inversely; inelastic
D)​directly; inelastic

Quizplus · Accepted Answer

The quantity of money demanded varies inversely with the nominal interest rate, meaning that when the interest rate is high, the demand for money is low and when the interest rate is low, the demand for money is high. On the other hand, the supply of money is almost perfectly inelastic with respect to nominal interest rates, meaning that it is not affected by changes in the interest rate. Therefore, the best choice is C, inversely for quantity demanded and inelastic for money supply.

The Quantity of Money Demanded Varies ____ with the Nominal